Adversarial Analysis
In this guide we'll focus on "adversarial analysis" of your smart contract system. Adversarial analysis means to analyze your system from the point of a potential malicious 3rd party which might want to hamper or attack your system.
Competing Transactions
When there are competing transactions (double spends) being propagated on the network, only one of the conflicting transactions can be included, the other transactions will in effect be cancelled. In the case of an unconfirmed transaction chain, any competing transaction for one of the transactions in this newly formed chain then presents a cancellation of all child transactions dependent on this parent transaction with a conflict.
Unlike on Ethereum, on Bitcoin Cash you can never have a transaction which has to pay fees but does not get included in the blockchain. Either it gets included and the fee is paid, or it's like it never happened.
In open contract systems competing transactions can happen organically and by accident, when 2 different users who might be on different sides of the world, interact with your on-chain system at roughly the same time. This situation can be called "UTXO contention" because 2 users simultaneously try to spend the same anyone-can-spend covenant.
However, it is also possible double-spends are created intentionally. For example in the case of a DEX naively updating its price state, a rational economic actor might be incentivized to ignore the latest unconfirmed transaction chain and to intentionally create a competing unconfirmed transaction chain. This way they can interact with the smart contract at an earlier (more advantageous) price.
Smart contract developers developing applications at scale should consider the game-theoretic interaction of advanced, rational economic actors who might benefit from competing against instead of cooperating on building a transaction chain.
First-Seen Rule
The "first-seen rule" is a default mempool inclusion and relay rule for full nodes which says that for any UTXO the first seen spending transaction is the one that gets included in the node's mempool and relayed. Because the first-seen rule is subjective based on time, different part of the network might enforce this rule for conflicting transactions in case of a race condition.
In case of normal a P2PKH transaction this time window for race conditions is the risk window where it's beneficial to listen for double spends with double-spend-proofs (DSPs).
Importantly, the "first-seen rule" is just a default and a network relay rule, advanced actors might send double-spend transactions with a significantly higher fee (bribe) to miners directly. Custom configured miners who actively maximize transaction fee revenue would accept the bribe transaction and switch off the "first-seen rule" altogether. However the majority of the Bitcoin Cash network will not relay such late double spend attempts in accordance with the first-seen rule.
On BTC the mempool node default policy got changed to replace-by-fee, and tooling to submit your non-standard transaction directly to mining pools has become common place with ordinals.
Miner-Extractable-Value (MEV)
Miner-Extractable-Value (MEV) refers to the value (either in dollars or in BCH) which miners can "extract" by having the ability to decide transaction inclusion and the ability to prioritize or insert their own transactions in their new block.
MEV works quite differently on a UTXO-model blockchain than on an account-based chain. So even if you are very familiar with the MEV mechanisms on Ethereum it will still be helpful to consider how they do - or do not - apply to Bitcoin Cash.
On Ethereum the acronym was changed to mean "Maximum-Extractable-Value" because ETH is now a proof-of-stake system and does not have miners. The modified concept still applies to the ETH block producers.
The reason why block producers are better positioned than other economic actors such as on-chain traders or arbitrageurs is that they can prioritize their own transactions even if conflicting transactions exist in the mempool.
Abandoning First-Seen
As should be clear from the explanation higher up, the "first-seen rule" is just a convention and a way to play nice, however it is not per se economically maximizing. If we see more "bribe" double spends then we can expect over times that some miners will deflect from the convention and use custom transaction selection software to extract MEV from bribe transactions.
Bounty for Transaction Building
A 1st source of potential MEV on Bitcoin Cash comes from smart contract systems which have a "bounty for transaction building" mechanism. Miners can automate the transaction building or possibly even modify an existing transaction to claim the bounties for such a system.
Profitable DEX trades
If DEXes don't cleverly aggregate their prices, then miners may be incentivized to strategically create a competing transaction chain which takes advantage of an older price state/ratio which has not yet been confirmed in the blockchain.
Not possible on UTXO
What is not possible to do on UTXO chains is a "sandwich" strategy where a miner would insert a transaction in the middle of a valid transaction chain. In UTXO each transaction explicitly consumes inputs of a previous transaction and creates outputs. Because of this it is not possible to "insert" a transaction in the middle of an unconfirmed chain and thus sandwich strategies are not possible.
