The Problem =========== We have an embedded consensus system and we want to be able to upgrade it with new rules. There inevitably will be a transition period where some users use clients that interpret the new rules, while others only interpret the old rules. Since we only rely on the host consensus system for timestamped proof-of-publication the the miner-vote soft-fork upgrade mechanism;(1) there are no validating miners in the system to whome trust can be outsourced.
We have a problem: messages encoding actions, such as moving as asset from one owner to another, can be published on the the blockchain according to new and old rules simultaneously, double-spending the asset. Potentially a user with the old v1 software may be tricked into accepting an asset when the consensus of the v2 software is that the asset has already been spent, and the v1-visible transaction is invalid. Solution ======== Split actions into a separate "decrement" and "increment" operations, and ensure that v1 software can see the "decrement" of a balance, spend of a transaction output etc. even if it does not see the corresponding increment operation. This solves the double-spend problem and ensures v1 users can't be ripped off. With obvious analogy to the PoW case, we will refer to this general principle as a embedded consensus system soft-fork. Note how with the Colored Coins technology this principle happens implicitly and with miner validation: colored coins are valid transaction outputs known to the host consensus system and moving them from one owner to another is guaranteed to result in the desctruction of the colored coin from the point of view of any older software version. Older software that does not support the newer colored coin kernel specified by the new asset definition will simply see the respective coins be destroyed in invalid transactions. Note how this implies that asset definitions created by issuers should be careful to ensure that kernels chosen should be designed such that the actioned specified by one kernel can-not be interpreted differently by another; kernels should be clearly incompatible with each other. Balance-based systems ===================== Mastercoin is a balance-based system where transactions increment and decrement balances. Being balance-based, and lacking pruning, an even simplier "scorched earth" approach will be used where each address is associated with a maximum version number seen by transactions signed by the address. Addresses with a max version number higher than what the software understands are considered to be null and have no value of any kind. (counterparty would be wise to do the same) Upgrading implementation ======================== Implementations should record in their databases the blockhash associated with transactions that were not recognized yet affected the state of the consensus. For instance a colored coin implementation should record the blockhash and transaction ID where a given coin was destroyed in an invalid transaction; after upgrading these "last transaction understood" markers can be used to replay blockchain data to arrive at the new consensus. Similarly in the case of the Mastercoin system balances associated with addresses that have been frozen should be still allowed to increment so that replaying blockchain data from the last recognized transaction arrives at a upgraded consensus. As an aside, any embedded consensus system would be wise to have a way of generating a master digest representing the state of the consensus in the database. The Bitcoin Core gettxoutsetinfo command is a good model, which provides hash_serialized, a digest representing the entire UTXO set. In all systems this is useful for ensuring that different implementations and instances have in fact arrived at a consensus. 1) BIP-16, Pay to Script Hash, https://github.com/bitcoin/bips/blob/master/bip-0016.mediawiki -- 'peter'[:-1]@petertodd.org 000000000000000075829f6169c79d7d5aaa20bfa8da6e9edb2393c4f8662ba0
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