Hi

I started a thread about the lack of fast local double spending verification a
week ago.  I was away for a week, and couldn't follow up on the thread. During
this week, I became even more positive about bitcoin. Contrary to what I said
last week,  I think that bitcoin could be a stand alone system; no issuer based
systems are needed to coexist with bitcoin. Bitcoin could be the real thing!
Kudos to all that have participated in it.  However, fast verification of the
absence of double spending is still important. I think, I have a solution that
more or less achieves it.

I should stress, that the underlying bitcoin architecture is completely
unchanged. My solution is living on top of bitcoin, so to speak.

Key to fast double spending verifications is to give coins a "location". A coin
can be local to such and such server in New York, for instance.  A New York
coin can be spent anywhere. It is valid anywhere etc. It is just that you can
expect faster double spending verification in NY.  Coins don't have to have a
location.

My proposed solution is to incorporate an extra field in outgoing transactions
designating a double spending verification server.  A coin's double spending
verification server is the one of the last outgoing transaction, of course.

The participants of the network are

1. Double spending verification servers. They do not exist in the current
system. The operation of a specific server is to receive a transaction for a
coin belonging to them, put it in a data store, and reply whether there is an
earlier transaction with the same coin.  In the case of no earlier transaction
just reply "ok", in the case of an earlier transaction reply "Double spending
attempt. The first transaction with this coin is so and so ..... ". The double
spending verification servers could be identified by a public key. This public
key might be the field stored in the coin. Some other database relates public
keys to ip addresses, dns or physical locations. The reply from the verifier
could be signed to prove the absence of interception.

2. The payer. The payer can choose a double spending verification server for
the outgoing transaction. Usually, one would choose the local one, or one that
is thought to be local for the payee. But anything goes, including choosing
nothing.

3. The payee. The payee will look at the double spending verification server of
the ingoing transaction, and send a request to this server.  If the reply is
"ok", the payee can trust the payment. If not, the payment is rejected. The
block chain is still the final judge, of course.  The super paranoid payee can
just wait for block incorporation, and is not forced to deal with the double
spending verifiers at all.

4. The bitcoin nodes. They will contact the double spending verifiers about
each transaction. If there is a double spending attempt, they will work on the
transaction suggested by the double spending verification server. This point is
crucial. The bitcoin nodes don't care how to resolve a double spending attempt,
so they just follow the advice of the corresponding double spending verifier.
This point is also what makes it possible for the payee to accept a payment as
soon as the double spending verifier has accepted it; the payee will know that
most honest nodes will favor this transaction.

So, a visit to a vending machine in would go as follows. The vending machine
would suggest some double spending verifiers that it trusts and publish the
latency for each of them. The wallet would choose the coin with the lowest
latency according to these figures, and pay with it. The vending machine would
contact the verifier and presumably get an ok, and release the product. It is
possible to prepare a wallet for a visit by making an exchange to oneself and
choose a new verifier. So on the plane to Australia, you transfer coins to
yourself and change the verifiers. When you arrive at the vending machine in
Australia, you will get millisecond response. But even, if the verifier is in
the US, the latency is still low. Much lower than block incorporation.

What if a verifier cheats? This will only happen a few times. You can publish
that you got an ok from a verifier, and then later the transaction was rejected
by the bitcoin network. It is even possible to use signatures to prove that the
verifier cheated if necessary. There will probably be quite few
verifiers compared to bitcoin nodes.

A group of people that wants to make some ultra fast local trading can then
meet close to a verifier, or run a verifier themselves, exchange their coins to
become local to this verifier, and start their high frequency trading. They can
all trust the absence of double spending without waiting for global
verification or block incorporation. 

Again, the bitcoin block chain is the final judge. This is just a voluntary
system on top.

Please, tell me if anything was unclear or I am missing something.

Gavin, your solution has high latency. I want to solve the problem of locality. You can get double spending verification at a time scale that does not grow with the total size of the network.

There are two uses of this. One is for high speed trading, i.e. millisecond latency, the other is for huge networks. The vending machine might be on Mars for that matter.

This is why locality should be built in in some way.

Your method is simply too slow for me, otherwise it works of course. On this planet, your method would preclude verifications faster than 200 milliseconds say.
The speed of light is the fundamental problem.

Mars is more extreme but there is an ATM in Antarctica.

http://www.needcoffee.com/2010/01/12/antarctica-atm-interview/

:-)

I like this article because it points out the difference between currency and money. There is a fixed amount of currency in Antarctica, but that amount is completely unrelated to how much money the people there own. (mere account balances)  Yet, bafflingly to some, the system works quite swimmingly for all involved.

The mars situation could work exactly the same way.

My point is that if there is a lot less cpu power on Mars, then the Mars nodes will ALWAYS lose the "create the longest block chain" race.  So the New York nodes will ALWAYS have the advantage.

And it is nice to say the New York vending machine "shouldn't accept a Mars coin within several hours,"  but, in my experience, "shouldn't" doesn't cut it.  If the New York candy machine CAN make the sale and keep the coins, it WILL.

Right, that's my issue with your proposal:  what incentive does the NY vending machine have to be honest?  It can be "dishonest", ignore verifiers all-together, and accept more transactions (better for it) with less work (also better for it).

I do not think that millisecond transaction processing is a necessary feature for Bitcoin. If this is what you really want you should probably build a different system.
If you want to interface it with Bitcoin,  just have an exchange which accumulates transactions and post batches to Bitcoins at a speed that Bitcoin can cope with (seconds).

Generally: I agree with gavinandresen.

This all seems like overkill. If you need quick transactions you can always use something like mybitcoin.com where transfers between two members are instant. If you don't like mybitcoin then start your own.

If you cant agree with your customers on one to trust then your issues are such that you should, I think, just put up with the delays of the main bitcoin system. Any trust - verification system will impose delays I think. Consider when the store clerk has to phone VISA for a suspicious credit card.