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I know miners are incentivized to verify and propagate transactions for their own benefit (by hopefully publishing it on their block before other miners do). But when a transaction is initially created, e.g. from a wallet that happens to only share a single (non-miner) peer, what incentive does this node have for propagation of the transaction to the rest of the network? Especially since the majority of the network is composed of non-mining nodes, where does this implied trust that they will reliably flood to all known neighbors come from?

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The incentive to propagate a transaction is so that adjacent peers cannot distinguish what transactions actually belong to the origin node.

Since all nodes by default relay all fee-paying transaction, it is not possible for a malicious actor to determine which transaction actually belongs to you as transaction that contain your inputs/outputs of interest will be masqueraded among transactions of interest to anonymous peers. This implicitly grants you more privacy since it makes it harder for a malicious observer to correlate transactions to your peer identity (e.g. ip address).

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    I guess my question is less about privacy concerns and more about trusting this relaying behavior is done by other neighboring nodes. Cryptography prevents fraudulent verifications of tampered transactions, but nodes can still theoretically just start dropping and refusing to send them. What if some malicious authority ensembles a large group of nodes that work benevolently for some time but at some later time decide to stop flooding many transactions. What if a wallet whose only peers were these previously thought to be benevolent relayers? – Leeren Oct 14 '17 at 18:27
  • If a malicious node decides to stop relaying, then it is a good sign that it exhibits odd behaviours and it can then be used to recognise malicious nodes. Honest nodes will then be programmed to disconnect these nodes. If a wallet whose only peers were these "malicious nodes", then unfortunately, the wallet owner would have been successfully "spied at". – renlord Oct 14 '17 at 23:36
  • So, in other words: non-miner nodes are incentivized to propagate transaction so they're more secure. – Geremia Mar 15 '18 at 17:00

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