Implement SequenceLocks functions

SequenceLocks functions are used to evaluate sequence lock times or heights per BIP 68.

The majority of this code is copied from maaku in #6312
Further credit: btcdrak, sipa, NicolasDorier

10 files changed, 301 insertions, 50 deletions

diff --git a/src/consensus/consensus.h b/src/consensus/consensus.h
index 5a099cf53c..ad9cc26175 100644
--- a/src/consensus/consensus.h
+++ b/src/consensus/consensus.h
@@ -13,8 +13,11 @@ static const unsigned int MAX_BLOCK_SIGOPS = MAX_BLOCK_SIZE/50;
 /** Coinbase transaction outputs can only be spent after this number of new blocks (network rule) */
 static const int COINBASE_MATURITY = 100;
 
-/** Flags for LockTime() */
+/** Flags for nSequence and nLockTime locks */
 enum {
+    /* Interpret sequence numbers as relative lock-time constraints. */
+    LOCKTIME_VERIFY_SEQUENCE = (1 << 0),
+
     /* Use GetMedianTimePast() instead of nTime for end point timestamp. */
     LOCKTIME_MEDIAN_TIME_PAST = (1 << 1),
 };
diff --git a/src/main.cpp b/src/main.cpp
index 5b27698d8b..1bc02c0943 100644
--- a/src/main.cpp
+++ b/src/main.cpp
@@ -671,9 +671,10 @@ bool IsFinalTx(const CTransaction &tx, int nBlockHeight, int64_t nBlockTime)
         return true;
     if ((int64_t)tx.nLockTime < ((int64_t)tx.nLockTime < LOCKTIME_THRESHOLD ? (int64_t)nBlockHeight : nBlockTime))
         return true;
-    BOOST_FOREACH(const CTxIn& txin, tx.vin)
-        if (!txin.IsFinal())
+    BOOST_FOREACH(const CTxIn& txin, tx.vin) {
+        if (!(txin.nSequence == CTxIn::SEQUENCE_FINAL))
             return false;
+    }
     return true;
 }
 
@@ -709,6 +710,128 @@ bool CheckFinalTx(const CTransaction &tx, int flags)
     return IsFinalTx(tx, nBlockHeight, nBlockTime);
 }
 
+/**
+ * Calculates the block height and previous block's median time past at
+ * which the transaction will be considered final in the context of BIP 68.
+ * Also removes from the vector of input heights any entries which did not
+ * correspond to sequence locked inputs as they do not affect the calculation.
+ */
+static std::pair<int, int64_t> CalculateSequenceLocks(const CTransaction &tx, int flags, std::vector<int>* prevHeights, const CBlockIndex& block)
+{
+    assert(prevHeights->size() == tx.vin.size());
+
+    // Will be set to the equivalent height- and time-based nLockTime
+    // values that would be necessary to satisfy all relative lock-
+    // time constraints given our view of block chain history.
+    // The semantics of nLockTime are the last invalid height/time, so
+    // use -1 to have the effect of any height or time being valid.
+    int nMinHeight = -1;
+    int64_t nMinTime = -1;
+
+    // tx.nVersion is signed integer so requires cast to unsigned otherwise
+    // we would be doing a signed comparison and half the range of nVersion
+    // wouldn't support BIP 68.
+    bool fEnforceBIP68 = static_cast<uint32_t>(tx.nVersion) >= 2
+                      && flags & LOCKTIME_VERIFY_SEQUENCE;
+
+    // Do not enforce sequence numbers as a relative lock time
+    // unless we have been instructed to
+    if (!fEnforceBIP68) {
+        return std::make_pair(nMinHeight, nMinTime);
+    }
+
+    for (size_t txinIndex = 0; txinIndex < tx.vin.size(); txinIndex++) {
+        const CTxIn& txin = tx.vin[txinIndex];
+
+        // Sequence numbers with the most significant bit set are not
+        // treated as relative lock-times, nor are they given any
+        // consensus-enforced meaning at this point.
+        if (txin.nSequence & CTxIn::SEQUENCE_LOCKTIME_DISABLE_FLAG) {
+            // The height of this input is not relevant for sequence locks
+            (*prevHeights)[txinIndex] = 0;
+            continue;
+        }
+
+        int nCoinHeight = (*prevHeights)[txinIndex];
+
+        if (txin.nSequence & CTxIn::SEQUENCE_LOCKTIME_TYPE_FLAG) {
+            int64_t nCoinTime = block.GetAncestor(std::max(nCoinHeight-1, 0))->GetMedianTimePast();
+            // NOTE: Subtract 1 to maintain nLockTime semantics
+            // BIP 68 relative lock times have the semantics of calculating
+            // the first block or time at which the transaction would be
+            // valid. When calculating the effective block time or height
+            // for the entire transaction, we switch to using the
+            // semantics of nLockTime which is the last invalid block
+            // time or height.  Thus we subtract 1 from the calculated
+            // time or height.
+
+            // Time-based relative lock-times are measured from the
+            // smallest allowed timestamp of the block containing the
+            // txout being spent, which is the median time past of the
+            // block prior.
+            nMinTime = std::max(nMinTime, nCoinTime + (int64_t)((txin.nSequence & CTxIn::SEQUENCE_LOCKTIME_MASK) << CTxIn::SEQUENCE_LOCKTIME_GRANULARITY) - 1);
+        } else {
+            nMinHeight = std::max(nMinHeight, nCoinHeight + (int)(txin.nSequence & CTxIn::SEQUENCE_LOCKTIME_MASK) - 1);
+        }
+    }
+
+    return std::make_pair(nMinHeight, nMinTime);
+}
+
+static bool EvaluateSequenceLocks(const CBlockIndex& block, std::pair<int, int64_t> lockPair)
+{
+    assert(block.pprev);
+    int64_t nBlockTime = block.pprev->GetMedianTimePast();
+    if (lockPair.first >= block.nHeight || lockPair.second >= nBlockTime)
+        return false;
+
+    return true;
+}
+
+bool SequenceLocks(const CTransaction &tx, int flags, std::vector<int>* prevHeights, const CBlockIndex& block)
+{
+    return EvaluateSequenceLocks(block, CalculateSequenceLocks(tx, flags, prevHeights, block));
+}
+
+bool CheckSequenceLocks(const CTransaction &tx, int flags)
+{
+    AssertLockHeld(cs_main);
+    AssertLockHeld(mempool.cs);
+
+    CBlockIndex* tip = chainActive.Tip();
+    CBlockIndex index;
+    index.pprev = tip;
+    // CheckSequenceLocks() uses chainActive.Height()+1 to evaluate
+    // height based locks because when SequenceLocks() is called within
+    // CBlock::AcceptBlock(), the height of the block *being*
+    // evaluated is what is used. Thus if we want to know if a
+    // transaction can be part of the *next* block, we need to call
+    // SequenceLocks() with one more than chainActive.Height().
+    index.nHeight = tip->nHeight + 1;
+
+    // pcoinsTip contains the UTXO set for chainActive.Tip()
+    CCoinsViewMemPool viewMemPool(pcoinsTip, mempool);
+    std::vector<int> prevheights;
+    prevheights.resize(tx.vin.size());
+    for (size_t txinIndex = 0; txinIndex < tx.vin.size(); txinIndex++) {
+        const CTxIn& txin = tx.vin[txinIndex];
+        CCoins coins;
+        if (!viewMemPool.GetCoins(txin.prevout.hash, coins)) {
+            return error("%s: Missing input", __func__);
+        }
+        if (coins.nHeight == MEMPOOL_HEIGHT) {
+            // Assume all mempool transaction confirm in the next block
+            prevheights[txinIndex] = tip->nHeight + 1;
+        } else {
+            prevheights[txinIndex] = coins.nHeight;
+        }
+    }
+
+    std::pair<int, int64_t> lockPair = CalculateSequenceLocks(tx, flags, &prevheights, index);
+    return EvaluateSequenceLocks(index, lockPair);
+}
+
+
 unsigned int GetLegacySigOpCount(const CTransaction& tx)
 {
     unsigned int nSigOps = 0;
@@ -930,6 +1053,14 @@ bool AcceptToMemoryPoolWorker(CTxMemPool& pool, CValidationState &state, const C
 
         // we have all inputs cached now, so switch back to dummy, so we don't need to keep lock on mempool
         view.SetBackend(dummy);
+
+        // Only accept BIP68 sequence locked transactions that can be mined in the next
+        // block; we don't want our mempool filled up with transactions that can't
+        // be mined yet.
+        // Must keep pool.cs for this unless we change CheckSequenceLocks to take a
+        // CoinsViewCache instead of create its own
+        if (!CheckSequenceLocks(tx, STANDARD_LOCKTIME_VERIFY_FLAGS))
+            return state.DoS(0, false, REJECT_NONSTANDARD, "non-BIP68-final");
         }
 
         // Check for non-standard pay-to-script-hash in inputs
@@ -2056,6 +2187,8 @@ bool ConnectBlock(const CBlock& block, CValidationState& state, CBlockIndex* pin
 
     CCheckQueueControl<CScriptCheck> control(fScriptChecks && nScriptCheckThreads ? &scriptcheckqueue : NULL);
 
+    std::vector<int> prevheights;
+    int nLockTimeFlags = 0;
     CAmount nFees = 0;
     int nInputs = 0;
     unsigned int nSigOps = 0;
@@ -2079,6 +2212,19 @@ bool ConnectBlock(const CBlock& block, CValidationState& state, CBlockIndex* pin
                 return state.DoS(100, error("ConnectBlock(): inputs missing/spent"),
                                  REJECT_INVALID, "bad-txns-inputs-missingorspent");
 
+            // Check that transaction is BIP68 final
+            // BIP68 lock checks (as opposed to nLockTime checks) must
+            // be in ConnectBlock because they require the UTXO set
+            prevheights.resize(tx.vin.size());
+            for (size_t j = 0; j < tx.vin.size(); j++) {
+                prevheights[j] = view.AccessCoins(tx.vin[j].prevout.hash)->nHeight;
+            }
+
+            if (!SequenceLocks(tx, nLockTimeFlags, &prevheights, *pindex)) {
+                return state.DoS(100, error("ConnectBlock(): contains a non-BIP68-final transaction", __func__),
+                                 REJECT_INVALID, "bad-txns-nonfinal");
+            }
+
             if (fStrictPayToScriptHash)
             {
                 // Add in sigops done by pay-to-script-hash inputs;
diff --git a/src/main.h b/src/main.h
index 9fd97d2126..ed02a2e71d 100644
--- a/src/main.h
+++ b/src/main.h
@@ -353,7 +353,22 @@ bool IsFinalTx(const CTransaction &tx, int nBlockHeight, int64_t nBlockTime);
  */
 bool CheckFinalTx(const CTransaction &tx, int flags = -1);
 
-/** 
+/**
+ * Check if transaction is final per BIP 68 sequence numbers and can be included in a block.
+ * Consensus critical. Takes as input a list of heights at which tx's inputs (in order) confirmed.
+ */
+bool SequenceLocks(const CTransaction &tx, int flags, std::vector<int>* prevHeights, const CBlockIndex& block);
+
+/**
+ * Check if transaction will be BIP 68 final in the next block to be created.
+ *
+ * Calls SequenceLocks() with data from the tip of the current active chain.
+ *
+ * See consensus/consensus.h for flag definitions.
+ */
+bool CheckSequenceLocks(const CTransaction &tx, int flags);
+
+/**
  * Closure representing one script verification
  * Note that this stores references to the spending transaction 
  */
diff --git a/src/policy/policy.h b/src/policy/policy.h
index 726864f190..746775f566 100644
--- a/src/policy/policy.h
+++ b/src/policy/policy.h
@@ -45,8 +45,9 @@ static const unsigned int STANDARD_SCRIPT_VERIFY_FLAGS = MANDATORY_SCRIPT_VERIFY
 /** For convenience, standard but not mandatory verify flags. */
 static const unsigned int STANDARD_NOT_MANDATORY_VERIFY_FLAGS = STANDARD_SCRIPT_VERIFY_FLAGS & ~MANDATORY_SCRIPT_VERIFY_FLAGS;
 
-/** Used as the flags parameter to CheckFinalTx() in non-consensus code */
-static const unsigned int STANDARD_LOCKTIME_VERIFY_FLAGS = LOCKTIME_MEDIAN_TIME_PAST;
+/** Used as the flags parameter to LockTime() in non-consensus code. */
+static const unsigned int STANDARD_LOCKTIME_VERIFY_FLAGS = LOCKTIME_VERIFY_SEQUENCE |
+                                                           LOCKTIME_MEDIAN_TIME_PAST;
 
 bool IsStandard(const CScript& scriptPubKey, txnouttype& whichType);
     /**
diff --git a/src/primitives/transaction.cpp b/src/primitives/transaction.cpp
index aea96d8a12..947f2e6a73 100644
--- a/src/primitives/transaction.cpp
+++ b/src/primitives/transaction.cpp
@@ -37,7 +37,7 @@ std::string CTxIn::ToString() const
         str += strprintf(", coinbase %s", HexStr(scriptSig));
     else
         str += strprintf(", scriptSig=%s", HexStr(scriptSig).substr(0, 24));
-    if (nSequence != std::numeric_limits<unsigned int>::max())
+    if (nSequence != SEQUENCE_FINAL)
         str += strprintf(", nSequence=%u", nSequence);
     str += ")";
     return str;
diff --git a/src/primitives/transaction.h b/src/primitives/transaction.h
index 8bd6d00e2e..07ae39e0b4 100644
--- a/src/primitives/transaction.h
+++ b/src/primitives/transaction.h
@@ -61,13 +61,40 @@ public:
     CScript scriptSig;
     uint32_t nSequence;
 
+    /* Setting nSequence to this value for every input in a transaction
+     * disables nLockTime. */
+    static const uint32_t SEQUENCE_FINAL = 0xffffffff;
+
+    /* Below flags apply in the context of BIP 68*/
+    /* If this flag set, CTxIn::nSequence is NOT interpreted as a
+     * relative lock-time. */
+    static const uint32_t SEQUENCE_LOCKTIME_DISABLE_FLAG = (1 << 31);
+
+    /* If CTxIn::nSequence encodes a relative lock-time and this flag
+     * is set, the relative lock-time has units of 512 seconds,
+     * otherwise it specifies blocks with a granularity of 1. */
+    static const uint32_t SEQUENCE_LOCKTIME_TYPE_FLAG = (1 << 22);
+
+    /* If CTxIn::nSequence encodes a relative lock-time, this mask is
+     * applied to extract that lock-time from the sequence field. */
+    static const uint32_t SEQUENCE_LOCKTIME_MASK = 0x0000ffff;
+
+    /* In order to use the same number of bits to encode roughly the
+     * same wall-clock duration, and because blocks are naturally
+     * limited to occur every 600s on average, the minimum granularity
+     * for time-based relative lock-time is fixed at 512 seconds.
+     * Converting from CTxIn::nSequence to seconds is performed by
+     * multiplying by 512 = 2^9, or equivalently shifting up by
+     * 9 bits. */
+    static const int SEQUENCE_LOCKTIME_GRANULARITY = 9;
+
     CTxIn()
     {
-        nSequence = std::numeric_limits<unsigned int>::max();
+        nSequence = SEQUENCE_FINAL;
     }
 
-    explicit CTxIn(COutPoint prevoutIn, CScript scriptSigIn=CScript(), uint32_t nSequenceIn=std::numeric_limits<unsigned int>::max());
-    CTxIn(uint256 hashPrevTx, uint32_t nOut, CScript scriptSigIn=CScript(), uint32_t nSequenceIn=std::numeric_limits<uint32_t>::max());
+    explicit CTxIn(COutPoint prevoutIn, CScript scriptSigIn=CScript(), uint32_t nSequenceIn=SEQUENCE_FINAL);
+    CTxIn(uint256 hashPrevTx, uint32_t nOut, CScript scriptSigIn=CScript(), uint32_t nSequenceIn=SEQUENCE_FINAL);
 
     ADD_SERIALIZE_METHODS;
 
@@ -78,11 +105,6 @@ public:
         READWRITE(nSequence);
     }
 
-    bool IsFinal() const
-    {
-        return (nSequence == std::numeric_limits<uint32_t>::max());
-    }
-
     friend bool operator==(const CTxIn& a, const CTxIn& b)
     {
         return (a.prevout   == b.prevout &&
diff --git a/src/script/interpreter.cpp b/src/script/interpreter.cpp
index 265131ae0d..901f901f01 100644
--- a/src/script/interpreter.cpp
+++ b/src/script/interpreter.cpp
@@ -1150,7 +1150,7 @@ bool TransactionSignatureChecker::CheckLockTime(const CScriptNum& nLockTime) con
     // prevent this condition. Alternatively we could test all
     // inputs, but testing just this input minimizes the data
     // required to prove correct CHECKLOCKTIMEVERIFY execution.
-    if (txTo->vin[nIn].IsFinal())
+    if (CTxIn::SEQUENCE_FINAL == txTo->vin[nIn].nSequence)
         return false;
 
     return true;
diff --git a/src/test/miner_tests.cpp b/src/test/miner_tests.cpp
index 71b52409b3..f3297e074d 100644
--- a/src/test/miner_tests.cpp
+++ b/src/test/miner_tests.cpp
@@ -57,6 +57,20 @@ struct {
     {2, 0xbbbeb305}, {2, 0xfe1c810a},
 };
 
+CBlockIndex CreateBlockIndex(int nHeight)
+{
+    CBlockIndex index;
+    index.nHeight = nHeight;
+    index.pprev = chainActive.Tip();
+    return index;
+}
+
+bool TestSequenceLocks(const CTransaction &tx, int flags)
+{
+    LOCK(mempool.cs);
+    return CheckSequenceLocks(tx, flags);
+}
+
 // NOTE: These tests rely on CreateNewBlock doing its own self-validation!
 BOOST_AUTO_TEST_CASE(CreateNewBlock_validity)
 {
@@ -79,6 +93,7 @@ BOOST_AUTO_TEST_CASE(CreateNewBlock_validity)
 
     // We can't make transactions until we have inputs
     // Therefore, load 100 blocks :)
+    int baseheight = 0;
     std::vector<CTransaction*>txFirst;
     for (unsigned int i = 0; i < sizeof(blockinfo)/sizeof(*blockinfo); ++i)
     {
@@ -92,7 +107,9 @@ BOOST_AUTO_TEST_CASE(CreateNewBlock_validity)
         txCoinbase.vin[0].scriptSig.push_back(chainActive.Height());
         txCoinbase.vout[0].scriptPubKey = CScript();
         pblock->vtx[0] = CTransaction(txCoinbase);
-        if (txFirst.size() < 2)
+        if (txFirst.size() == 0)
+            baseheight = chainActive.Height();
+        if (txFirst.size() < 4)
             txFirst.push_back(new CTransaction(pblock->vtx[0]));
         pblock->hashMerkleRoot = BlockMerkleRoot(*pblock);
         pblock->nNonce = blockinfo[i].nonce;
@@ -240,49 +257,96 @@ BOOST_AUTO_TEST_CASE(CreateNewBlock_validity)
 
     // non-final txs in mempool
     SetMockTime(chainActive.Tip()->GetMedianTimePast()+1);
+    int flags = LOCKTIME_VERIFY_SEQUENCE|LOCKTIME_MEDIAN_TIME_PAST;
+    // height map
+    std::vector<int> prevheights;
 
-    // height locked
-    tx.vin[0].prevout.hash = txFirst[0]->GetHash();
+    // relative height locked
+    tx.nVersion = 2;
+    tx.vin.resize(1);
+    prevheights.resize(1);
+    tx.vin[0].prevout.hash = txFirst[0]->GetHash(); // only 1 transaction
+    tx.vin[0].prevout.n = 0;
     tx.vin[0].scriptSig = CScript() << OP_1;
-    tx.vin[0].nSequence = 0;
+    tx.vin[0].nSequence = chainActive.Tip()->nHeight + 1; // txFirst[0] is the 2nd block
+    prevheights[0] = baseheight + 1;
+    tx.vout.resize(1);
     tx.vout[0].nValue = 4900000000LL;
     tx.vout[0].scriptPubKey = CScript() << OP_1;
-    tx.nLockTime = chainActive.Tip()->nHeight+1;
+    tx.nLockTime = 0;
     hash = tx.GetHash();
     mempool.addUnchecked(hash, entry.Fee(100000000L).Time(GetTime()).SpendsCoinbase(true).FromTx(tx));
-    BOOST_CHECK(!CheckFinalTx(tx, LOCKTIME_MEDIAN_TIME_PAST));
-
-    // time locked
-    tx2.vin.resize(1);
-    tx2.vin[0].prevout.hash = txFirst[1]->GetHash();
-    tx2.vin[0].prevout.n = 0;
-    tx2.vin[0].scriptSig = CScript() << OP_1;
-    tx2.vin[0].nSequence = 0;
-    tx2.vout.resize(1);
-    tx2.vout[0].nValue = 4900000000LL;
-    tx2.vout[0].scriptPubKey = CScript() << OP_1;
-    tx2.nLockTime = chainActive.Tip()->GetMedianTimePast()+1;
-    hash = tx2.GetHash();
-    mempool.addUnchecked(hash, entry.Fee(100000000L).Time(GetTime()).SpendsCoinbase(true).FromTx(tx2));
-    BOOST_CHECK(!CheckFinalTx(tx2, LOCKTIME_MEDIAN_TIME_PAST));
+    BOOST_CHECK(CheckFinalTx(tx, flags)); // Locktime passes
+    BOOST_CHECK(!TestSequenceLocks(tx, flags)); // Sequence locks fail
+    BOOST_CHECK(SequenceLocks(tx, flags, &prevheights, CreateBlockIndex(chainActive.Tip()->nHeight + 2))); // Sequence locks pass on 2nd block
+
+    // relative time locked
+    tx.vin[0].prevout.hash = txFirst[1]->GetHash();
+    tx.vin[0].nSequence = CTxIn::SEQUENCE_LOCKTIME_TYPE_FLAG | (((chainActive.Tip()->GetMedianTimePast()+1-chainActive[1]->GetMedianTimePast()) >> CTxIn::SEQUENCE_LOCKTIME_GRANULARITY) + 1); // txFirst[1] is the 3rd block
+    prevheights[0] = baseheight + 2;
+    hash = tx.GetHash();
+    mempool.addUnchecked(hash, entry.Time(GetTime()).FromTx(tx));
+    BOOST_CHECK(CheckFinalTx(tx, flags)); // Locktime passes
+    BOOST_CHECK(!TestSequenceLocks(tx, flags)); // Sequence locks fail
+
+    for (int i = 0; i < CBlockIndex::nMedianTimeSpan; i++)
+        chainActive.Tip()->GetAncestor(chainActive.Tip()->nHeight - i)->nTime += 512; //Trick the MedianTimePast
+    BOOST_CHECK(SequenceLocks(tx, flags, &prevheights, CreateBlockIndex(chainActive.Tip()->nHeight + 1))); // Sequence locks pass 512 seconds later
+    for (int i = 0; i < CBlockIndex::nMedianTimeSpan; i++)
+        chainActive.Tip()->GetAncestor(chainActive.Tip()->nHeight - i)->nTime -= 512; //undo tricked MTP
+
+    // absolute height locked
+    tx.vin[0].prevout.hash = txFirst[2]->GetHash();
+    tx.vin[0].nSequence = CTxIn::SEQUENCE_FINAL - 1;
+    prevheights[0] = baseheight + 3;
+    tx.nLockTime = chainActive.Tip()->nHeight + 1;
+    hash = tx.GetHash();
+    mempool.addUnchecked(hash, entry.Time(GetTime()).FromTx(tx));
+    BOOST_CHECK(!CheckFinalTx(tx, flags)); // Locktime fails
+    BOOST_CHECK(TestSequenceLocks(tx, flags)); // Sequence locks pass
+    BOOST_CHECK(IsFinalTx(tx, chainActive.Tip()->nHeight + 2, chainActive.Tip()->GetMedianTimePast())); // Locktime passes on 2nd block
+
+    // absolute time locked
+    tx.vin[0].prevout.hash = txFirst[3]->GetHash();
+    tx.nLockTime = chainActive.Tip()->GetMedianTimePast();
+    prevheights.resize(1);
+    prevheights[0] = baseheight + 4;
+    hash = tx.GetHash();
+    mempool.addUnchecked(hash, entry.Time(GetTime()).FromTx(tx));
+    BOOST_CHECK(!CheckFinalTx(tx, flags)); // Locktime fails
+    BOOST_CHECK(TestSequenceLocks(tx, flags)); // Sequence locks pass
+    BOOST_CHECK(IsFinalTx(tx, chainActive.Tip()->nHeight + 2, chainActive.Tip()->GetMedianTimePast() + 1)); // Locktime passes 1 second later
+
+    // mempool-dependent transactions (not added)
+    tx.vin[0].prevout.hash = hash;
+    prevheights[0] = chainActive.Tip()->nHeight + 1;
+    tx.nLockTime = 0;
+    tx.vin[0].nSequence = 0;
+    BOOST_CHECK(CheckFinalTx(tx, flags)); // Locktime passes
+    BOOST_CHECK(TestSequenceLocks(tx, flags)); // Sequence locks pass
+    tx.vin[0].nSequence = 1;
+    BOOST_CHECK(!TestSequenceLocks(tx, flags)); // Sequence locks fail
+    tx.vin[0].nSequence = CTxIn::SEQUENCE_LOCKTIME_TYPE_FLAG;
+    BOOST_CHECK(TestSequenceLocks(tx, flags)); // Sequence locks pass
+    tx.vin[0].nSequence = CTxIn::SEQUENCE_LOCKTIME_TYPE_FLAG | 1;
+    BOOST_CHECK(!TestSequenceLocks(tx, flags)); // Sequence locks fail
 
     BOOST_CHECK(pblocktemplate = CreateNewBlock(chainparams, scriptPubKey));
 
-    // Neither tx should have make it into the template.
-    BOOST_CHECK_EQUAL(pblocktemplate->block.vtx.size(), 1);
+    // None of the of the absolute height/time locked tx should have made
+    // it into the template because we still check IsFinalTx in CreateNewBlock,
+    // but relative locked txs will if inconsistently added to mempool.
+    // For now these will still generate a valid template until BIP68 soft fork
+    BOOST_CHECK_EQUAL(pblocktemplate->block.vtx.size(), 3);
     delete pblocktemplate;
-
-    // However if we advance height and time by one, both will.
+    // However if we advance height by 1 and time by 512, all of them should be mined
+    for (int i = 0; i < CBlockIndex::nMedianTimeSpan; i++)
+        chainActive.Tip()->GetAncestor(chainActive.Tip()->nHeight - i)->nTime += 512; //Trick the MedianTimePast
     chainActive.Tip()->nHeight++;
-    SetMockTime(chainActive.Tip()->GetMedianTimePast()+2);
-
-    // FIXME: we should *actually* create a new block so the following test
-    //        works; CheckFinalTx() isn't fooled by monkey-patching nHeight.
-    //BOOST_CHECK(CheckFinalTx(tx));
-    //BOOST_CHECK(CheckFinalTx(tx2));
+    SetMockTime(chainActive.Tip()->GetMedianTimePast() + 1);
 
     BOOST_CHECK(pblocktemplate = CreateNewBlock(chainparams, scriptPubKey));
-    BOOST_CHECK_EQUAL(pblocktemplate->block.vtx.size(), 2);
+    BOOST_CHECK_EQUAL(pblocktemplate->block.vtx.size(), 5);
     delete pblocktemplate;
 
     chainActive.Tip()->nHeight--;
diff --git a/src/test/script_tests.cpp b/src/test/script_tests.cpp
index 10175ebe8e..f370a4aa2a 100644
--- a/src/test/script_tests.cpp
+++ b/src/test/script_tests.cpp
@@ -63,7 +63,7 @@ CMutableTransaction BuildCreditingTransaction(const CScript& scriptPubKey)
     txCredit.vout.resize(1);
     txCredit.vin[0].prevout.SetNull();
     txCredit.vin[0].scriptSig = CScript() << CScriptNum(0) << CScriptNum(0);
-    txCredit.vin[0].nSequence = std::numeric_limits<unsigned int>::max();
+    txCredit.vin[0].nSequence = CTxIn::SEQUENCE_FINAL;
     txCredit.vout[0].scriptPubKey = scriptPubKey;
     txCredit.vout[0].nValue = 0;
 
@@ -80,7 +80,7 @@ CMutableTransaction BuildSpendingTransaction(const CScript& scriptSig, const CMu
     txSpend.vin[0].prevout.hash = txCredit.GetHash();
     txSpend.vin[0].prevout.n = 0;
     txSpend.vin[0].scriptSig = scriptSig;
-    txSpend.vin[0].nSequence = std::numeric_limits<unsigned int>::max();
+    txSpend.vin[0].nSequence = CTxIn::SEQUENCE_FINAL;
     txSpend.vout[0].scriptPubKey = CScript();
     txSpend.vout[0].nValue = 0;
 
diff --git a/src/txmempool.cpp b/src/txmempool.cpp
index f8e03c2533..0b0f32e406 100644
--- a/src/txmempool.cpp
+++ b/src/txmempool.cpp
@@ -506,7 +506,7 @@ void CTxMemPool::removeForReorg(const CCoinsViewCache *pcoins, unsigned int nMem
     list<CTransaction> transactionsToRemove;
     for (indexed_transaction_set::const_iterator it = mapTx.begin(); it != mapTx.end(); it++) {
         const CTransaction& tx = it->GetTx();
-        if (!CheckFinalTx(tx, flags)) {
+        if (!CheckFinalTx(tx, flags) || !CheckSequenceLocks(tx, flags)) {
             transactionsToRemove.push_back(tx);
         } else if (it->GetSpendsCoinbase()) {
             BOOST_FOREACH(const CTxIn& txin, tx.vin) {