Ok, i am now writing the code for bid based allocation but i need some opinions. There is a lot that could go wrong with this system. So i am researching current technologies and comparing with what the originators intended/understood about such a system.
While some of the thinking is slighlty back-dated a lot of it is valid and holds bearing on the present and the future.
On Micro transactions and Zero Confirmations I believe it'll be possible for a payment processing company to provide as a service the rapid distribution of transactions with good-enough checking in something like 10 seconds or less.
The network nodes only accept the first version of a transaction they receive to incorporate into the block they're trying to generate. When you broadcast a transaction, if someone else broadcasts a double-spend at the same time, it's a race to propagate to the most nodes first. If one has a slight head start, it'll geometrically spread through the network faster and get most of the nodes.
A rough back-of-the-envelope example:
1 0
4 1
16 4
64 16
80% 20%
So if a double-spend has to wait even a second, it has a huge disadvantage.
The payment processor has connections with many nodes. When it gets a transaction, it blasts it out, and at the same time monitors the network for double-spends. If it receives a double-spend on any of its many listening nodes, then it alerts that the transaction is bad. A double-spent transaction wouldn't get very far without one of the listeners hearing it. The double-spender would have to wait until the listening phase is over, but by then, the payment processor's broadcast has reached most nodes, or is so far ahead in propagating that the double-spender has no hope of grabbing a significant percentage of the remaining nodes.
On IP Based Paymentsdirect to IP address transfers seems like a obvious surface area to attack.
If you ever find anyone who turned it on. It's disabled by default.
It's not safe to use listtransactions this way.
I know I've been criticized for being reluctant about listtransactions. Let me explain my reluctance.
Transactions are dynamic. Past transactions can become unconfirmed, go away and come back, become invalid and disappear, or be replaced by a different double-spend. Their date can change, their order can change.
The model where you assume you only need to see new transactions because you've already seen previous transactions is not true. Old transactions can change at any time.
Any time you take an action based on payment amounts received, you always need to go back to bitcoin and ask for a current balance total (or use move or sendfrom), and be ready for the possibility that it can go down.
With this and many others in mind, I think we have to reconsider our bid based system. It has to be bullet proof and it must allow full decentralization, even if it is limited to the tx validation tier.
