BitUndo can destroy instant 0-confirmation transactions
BitUndo (http://www.bitundo.com) is a service allowing to double-spend your own transactions for a fee. So that you can “undo” your supposedly mistaken transaction. It is of questionable value and works as a direct attack on current practice of accepting 0-confirmation transactions for small purchases.
Right now nodes do not accept double spending transactions, no matter how much they pay in mining fees. This makes simple security promise for 0-conf transactions: the most relayed version is the one that most probably will be included in the block. So merchants can accept such transactions because they know that reversing it would cost much more than 100% of the transaction value.
If enough nodes on the network replace transactions when the mining fee is, say, 10% higher than the previous version (or 10% of the total amount, or whatever), then for the user it is much cheaper to “take money back”. You will send $5 for your coffee and get back $4 with no sweat. Merchant will lose all $5. You can say goodbye to 0-confirmation transactions.
So what do we have:
1) Users get some sort of “undo” function which is nobody was asking for. In my view, if there’s a problem with accidental button clicking in the UI, it’s simpler to fix right there, not by changing the entire network.
2) No one can rely on 0-confirmation transactions anymore. Even today they are not safe, but for small purchases the risks are pretty low, so they work for many people to everyone’s satisfaction. But with network-wide “replace with higher-fee transaction” the risk will go up significantly to make this feature unusable.
However, in the long run, 0-conf transactions won’t be the future of instant micropayments (we’ll have some sort of distributed clearing network instead), so we might not care that much. But the value of “undo” is still very questionable to throw away usefulness of 0-conf transactions today.
Final note: Bitundo can’t be useful when it’s small. It’s either working more than 90% of the time for legitimate “undos” (which makes 0-conf txs useless) or it’s used marginally only by those who wish to rob merchants who accept 0-conf transactions. In which case they still may render 0-conf transactions useless.