[Bitcoin-development] Coinbase reallocation to discourage Finney attacks]

Sergio Lerner sergiolerner at certimix.com
Wed Apr 23 19:33:24 UTC 2014

(this e-mail is cc to the bitcoin-research list)

Hi everyone from the bitcoin-development mailing list!
I decided to join this legendary list because it seems that all the
research fun is taking place in here, and I don't want to miss the
research party.

Regarding the discussion about BitUndo, a year ago I posted about an
attack (which I called the the Bitcoin Eternal Choice for the Dark Side
Attack or ECDSA)
that tries to erode the confidence in Bitcoin by offering double-spends
as a service.

I think it's related to the last post from Peter Todd about the problems
with BitUndo.

Here is the link if anyone is interested in reading about it...

Sergio D. Lerner.

On 23/04/2014 12:29 p.m., Peter Todd wrote:
> Interesting discussion re: incentive compatibility happening on the
> bitcoin-development email list:
> ----- Forwarded message from Mike Hearn <mike at plan99.net> -----
> Date: Wed, 23 Apr 2014 09:55:30 +0200
> From: Mike Hearn <mike at plan99.net>
> To: Bitcoin Dev <bitcoin-development at lists.sourceforge.net>
> Subject: [Bitcoin-development] Coinbase reallocation to discourage Finney attacks
> Lately someone launched Finney attacks as a service (BitUndo). As a
> reminder for newcomers, Finney attacks are where a miner secretly works on
> a block containing a double spend. When they eventually find a block, they
> run to the merchant and pay, then broadcast the block. In a simpler variant
> of this attack you make purchases as normal with a modified wallet that
> always submits a double spend to the service, and then N% of the time where
> N is the percentage of overall hash power the dishonest miners have, you
> get your money back minus their fee.
> N does not need to be very high to render Bitcoin much less useful. Real
> time transactions are very important. Although I never expected it when I
> first started using Bitcoin, nowadays most of my purchases with it are for
> food and drink. If Bitcoin could not support such purchases, I would use it
> much less.
> Even with their woeful security many merchants see <1-2% credit card
> chargeback rates, and chargebacks can be disputed. In fact merchants win
> about 40% of chargeback disputes. So if N was only, say, 5%, and there was
> a large enough population of users who were systematically trying to
> defraud merchants, we'd already be having worse security than magstripe
> credit cards. EMV transactions have loss rates in the noise, so for
> merchants who take those Bitcoin would be dramatically less secure.
> The idea of discouraging blocks that perform Finney attacks by having
> honest miners refuse to build on them has been proposed. But it has a
> couple of problems:
>    1. It's hard to automatically detect Finney attacks. Looking for blocks
>    that contain unseen transactions that override the mempool doesn't work -
>    the dishonest users could broadcast all their double spends once a Finney
>    block was found and then broadcast the block immediately afterwards, thus
>    making the block look like any other would in the presence of double spends.
>    2. If they could be automatically identified, it possibly could be
>    converted into a DoS on the network by broadcasting double spends in such a
>    way that the system races, and every miner produces a block that looks like
>    a Finney attack to some of the others. The chain would stop advancing.
>    3. Miners who want to vote "no" on a block take a big risk, they could
>    be on the losing side of the fork and end up wasting their work.
> We can resolve these problems with a couple of tweaks:
>    1. Dishonest blocks can be identified out of band, by having honest
>    miners submit double spends against themselves to the service anonymously
>    using a separate tool. When their own double spend appears they know the
>    block is bad.
>    2. Miners can vote to reallocate the coinbase value of bad blocks before
>    they mature. If a majority of blocks leading up to maturity vote for
>    reallocation, the value goes into a pot that subsequent blocks are allowed
>    to claim for themselves. Thus there is no risk to voting "no" on a block,
>    the work done by the Finney attacker is not wasted, and users do not have
>    to suffer through huge reorgs.
> This may seem a radical suggestion, but I think it's much less radical than
> some of the others being thrown around.
> The above approach works as long as the majority of hashpower is honest,
> defined to mean, working to stop double spending. This is the same security
> property as described in the white paper, thus this introduces no new
> security assumptions. Note that assuming *all* miners are dishonest and are
> willing to double spend automatically resolves the Bitcoin experiment as a
> failure, because that would invalidate the entire theory upon which the
> system is built. That doesn't mean the assumption is wrong! It may be that
> an entirely unregulated market for double spending prevention cannot work
> and the participants eventually all end up trashing the commons - but the
> hope is that smart incentives can replace the traditional reliance on law
> and regulation to avoid this.
> The voting mechanism would only apply to coinbases, not arbitrary
> transactions, thus it cannot be used to steal arbitrary users bitcoins. A
> majority of miners can already reallocate coinbases by forking them out,
> but this wastes energy and work presenting a significant discouragement to
> vote unless you already know via some out of band mechanism that you have a
> solid majority. Placing votes into the coinbase scriptSig as is done with
> other things avoids that problem.
> The identification of Finney blocks relies on miners to take explicit
> action, like downloading and running a tool that submits votes via RPC. It
> can be expected that double spending services would try to identify and
> block the sentinel transactions, which is why it's better to have the code
> that fights this arms race be out of process and developed externally to
> Bitcoin Core itself, which should ultimately just enforce the new (forking)
> rule change.
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