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If major Internet connections are broken, what happens to BitCoin transactions?

For example, the Internet connection is broken between three major areas (North America, Europa, and Asia) for a couple of hours, and these three regions become isolated to each other.

Can we still do bitcoin transactions inside these three regions?

marked as duplicate by Nate Eldredge, Stéphane Gimenez, Murch, Salvador Dali, dchapes Jan 1 '14 at 21:18

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Bitcoin would be catastrophically broken under such a scenario. Transactions could accumulate any number of confirmations and then unconfirm if blocks leak from one region to another. Bitcoin fails horribly if you are not either connected to none of the hashing power or connected to most of the hashing power. Anywhere in-between, for extended times, is catastrophe.

This is actually not particularly difficult to fix, but nobody seems particularly interested in fixing it.

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This is a loaded questions worthy of numerous doctorate or master theses. Don't know the full answer, but can only speculate. Here is a scenario that should exercise a few cerebral muscles.

If the Blockchain is effectively fractured into the three indicated geographical regions (this will be an "extremely" challenging task taking incredible national resources because of technologies such as The Onion Router), each region will have its own mining capacity. Let's assume the mining capacity is evenly distributed across the three regions, the number of transactions inside each region are comparable, and the mining operations are not impacted. Then it is likely to take three times as long for a confirmation to occur in each region. This behavior will continue until the 2016 block difficulty factor corrects itself within each region. For this reason, it is not unreasonable to suspect the likelihood of such a Blockchain fracturing event is likely to take place just prior to a 2016 block factor reset, nominally every two weeks. (Loyd's will probably take note of this point.)

To realign the Blockchain will require a great merge & purge (having complexities and heated debates associated with it that is analogous to merging forked code between communities with different interests) requiring considerable international coordination, probably requiring treaties. The blocks that are purged are essentially revoked. This calls into question the validity of the transactions that will be pruned to support such a great merge. The odds of rolling back the Blockchain will diminish quickly the longer the Blockchain remains fractured.

If the Blockchain remains fractured, the transactions will be regional. People with the ability to travel and transport their Bitcoins could then spend their BTCs in one region, again in another, and another - roaming double spend attacks. Thus the intrinsic ledger value of the Bitcoins will diminish accordingly - a sudden inflation if you will.

Each region will need to ensure their ledgers remain within their controlled "security domain" because the other regions will have comparable computing power that could be used for attacking the integrity of another region's Blockchain. To ensure the integrity of regional Blockchains, cross domain solutions (CDS) will be deployed at mining pools that have local supernode images. Supernodes will become protected "critical infrastructure" assets and the sharing of information from them will become highly controlled. Thus, solo mining is likely to end when such an epoch occurs, because few solo miners will not be capable of filtering the non-authorized regional transactions from the authorized ones. (For now, the primary market for CDS is for the exchanges to ensure counterfeit Bitcoins don't enter into their proprietary trading platforms.) Bitcoin clients will be forced to use service provider Bitcoin proxies within regional borders.

In a nutshell, if a great fracture remains, the Bitcoin networks will start to look much more like SIP VoIP P2P networks where endpoints authenticate themselves to proxies, proxies establish trusted peering connections to one another. The mining pools will connect to the proxies. The mining pools will then become the keepers of the defacto regional Blockchain. The transactions architecture will become more centralized, but the ownership and banking of the Bitcoins can remain decentralized. Because of the centralized networking governments will be able to still gather intelligence associated transactions.

The deployment of infrastructure described immediately above will be costly, and will thus raise the burden of cost for adopting other P2P Crypto currencies.

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