The Local Trader backend does an advanced analysis of the state of the transaction on the Bitcoin network. The base confidence is determined by the percent of the Bitcoin network that has seen the transaction. A number of factors reduce the confidence:
- The Local Trader server does real-time double-spend analysis of all unconfirmed transactions. If a double-spend is detected, the confidence is reduced to zero.
- The Local Trader server monitors how many unconfirmed transactions the transaction depends on. This can be a long and/or wide chain. For every unconfirmed dependency, the confidence is halved.
- The Local Trader server monitors whether one of the unconfirmed dependencies have been subject to a malleability attack. If transaction malleability is detected, the confidence is halved.
- The Local Trader server monitors whether the transaction, or one of its unconfirmed dependencies, have paid a low mining fee. If yes, the confidence is halved.
All in all, this analysis makes it really hard for a trader to cheat you if the confidence is at 99%, but it is not a guarantee.