[WhitePaper] Proof-of-Timelock & Proof-of-Referral

The following is a whitepaper that describes one potential solution for eliminating counterparty risk associated with p2p transactions, especially in an anonymous network:


Short Abstract:

With the rise of the sharing economy, commerce on the internet has come to rely almost exclusively on 3rd party marketplaces to mediate the counterpart risk associated with p2p transactions.

While this system of ‘marketplaces’ works well for most transactions, it still suffers from weaknesses in its feedback / reputation model. It’s fairly easy for bad actors to break the system by creating fake identities, using stolen credit cards, executing chargebacks, and manipulating feedback ratings.

The cost of protecting against all these factors leads to increased transaction costs, while simultaniously stifling overall innovation by creating huge overhead for new entrants looking to gain market-share.

In addition, buyers and sellers are locked into the marketplace they select. A user may be looking to sell a 1965 bicycle on eBay, while another user on Craigslist is looking to buy a 1965 bicycle. This transaction is never executed because the listing data is protected in isolated silohs.

What’s needed is an open commerce ledger based on a system of cryptographic trust. The solution proposed in this whitepaper is to create such a system in the form of Mutual Timelock Collateral.

Due to the incentives of such a system, both parties entering into a p2p transaction can remain completely anonymous, but can also be fully trusted by the other party unless they want to leave the transaction with a net loss. The way this is done is through proof-of-timelock.