Can a system of trust be built on top of the current block chain

Question

One way to expedite small transactions would be to have all of the miner shun all further transactions by someone who has attempted a double spend, then if someone only wants to transfer less than 50% of their wealth then it can be assumed that it is a valid transaction because their expected return with a successful double spend is exactly what they would do with a valid transaction.

As far as I understand all that would be needed for this to be put into place would be to update the protocol, the blockchain can be preserved. Am I wrong? Is this a bad idea?

Answer 1

This won't work. Consider:

1. I send you 1 Bitcoin from an account that has 2 Bitcoins to an account of yours that has 99 Bitcoins.

2. Your account now has 100 Bitcoins. You rely on this new system and consider my transaction to you confirmed. You send the 1 Bitcoin I sent you and 9 other Bitcoins you had before to someone else.

3. I double spend the 1 Bitcoin I sent you. Your transaction of 10 Bitcoins is now a double spend as well.

Now, there are two choices and they both suck:

1. Only my account is frozen. But anyone who relied on your transaction is screwed with no recourse. And only my 1 Bitcoin is frozen even though someone got screwed on a 10 Bitcoin transaction from an account holding 100 Bitcoins.

2. Your account is frozen. But you did nothing wrong but rely on my transaction, and now your 100 Bitcoins are frozen.

You and I may or may not be in collusion, and there's no way to tell which just from looking at the transactions.

You are operating on a set of false assumptions about how double spends actually occur.