Microsoft Researchers Suggest Method to Improve Bitcoin Transaction Propagation

The beauty of open-source code is that everyone can have input into its improvement. In our case, even Microsoft Research staff are sharing their two Bitcoins. From the paper's abstract:

"Bitcoin, which has been getting a large amount of public attention over the last year, represents a radical new approach to monetary systems which has appeared in policy discussions and in the popular press. Its cryptographic fundamentals have largely held up even as its usage has become increasingly widespread.

We find, however, that it exhibits a fundamental problem of a different nature, based on how its incentives are structured. We propose a modification to the protocol that can fix this problem.

Bitcoin relies on a peer-to-peer network to track transactions that are performed with the currency. For this purpose, every transaction a node learns about should be transmitted to its neighbors in the network. As the protocol is currently defined and implemented, it does not provide an incentive for nodes to broadcast transactions they are aware of. In fact, it provides a strong incentive not to do so. Our solution is to augment the protocol with a scheme that rewards information propagation."

The key issue is that nodes on the network have an incentive to keep transaction information to themselves to improve their odds of earning the transaction fee. These researchers propose a system to fix the incentive structure.

Edit: here is a simplified summary of the paper.