Project Praesto: Decentralized exchange, reputation, and private law

[ninjabanker]

Project Praesto is the implementation of a decentralized, P2P exchange mechanism between Bitcoin and legacy currencies.
We're currently looking for contributors on our collaboration platform:

http://nkou33nmqzfpqw2a.onion/projects/1/join?token=91184abb2a2f740f249c1eb92d6cbd9496b9053e
http://wp6qoxbb6hjxs32ih7zur3d3bbjtyazea4gc4hhfcrff2mhlxyva.b32.i2p/projects/1/join?token=91184abb2a2f740f249c1eb92d6cbd9496b9053e
http://praesto.airdns.org:63853/projects/1/join?token=91184abb2a2f740f249c1eb92d6cbd9496b9053e

Anyone who is interested is invited to create an account via either of those links. Please excuse the mess, as the site is still under development.

[solex]

Excellent project.
I would tack "P2P bitcoin/fiat exchange" in the thread title as new initiatives are announced on this forum every few hours so extra clarity helps stand out amongst the background noise.

[ninjabanker]

I would tack "P2P bitcoin/fiat exchange" in the thread title as new initiatives are announced on this forum every few hours so extra clarity helps stand out amongst the background noise.

Thanks for the suggestion.

[ninjabanker]

A generous donor has provides a means by which the site can be reached without needing Tor or I2P:

http://praesto.airdns.org:63853/projects/1/wiki

Anyone who  is interested in any of the concepts involved, please sign up there and join the conversation. The more constructive feedback we get, the better.

[becoin]

We're currently looking for contributors on our collaboration platform

Open Enterprise is a great concept. Any idea why is bettermeans abandoned as a project?

[fellowtraveler]

Just wanted to drop a note of support for ninjabanker's proposal.

My "holy grail" project is integrating with ninjabanker's project, since it adds fiat currencies without the need for any issuer holding reserves. (Since the reserves are held in cryptocurrency escrow instead.)

In my original "holy grail" post, our solution was to use issuers in combination with colored coins (and we will still probably support that) but ninjabanker's idea goes a step beyond that by eliminating issuers altogether. (So any previous concerns about the legality of "bearer bonds" should be alleviated.)

[ninjabanker]

Open Enterprise is a great concept. Any idea why is bettermeans abandoned as a project?

The creators tried to develop the  Bettermeans code as part of a freemium business model, and it didn't work out.

[becoin]

Open Enterprise is a great concept. Any idea why is bettermeans abandoned as a project?

The creators tried to develop the  Bettermeans code as part of a freemium business model, and it didn't work out.

I see no technological or business reason why it shouldn't work out. I suspect the team was dismantled and project sabotaged because the Occupy Wall Street (OWS) movement tried to use this platform to coordinate their activities.

[ninjabanker]

I see no technological or business reason why it shouldn't work out. I suspect the team was dismantled and project sabotaged because the Occupy Wall Street (OWS) movement tried to use this platform to coordinate their activities.

That's certainly possible.

That's part of the reason I'm only hosting the site it in the darknet.

[ninjabanker]

As we've been developing the concept, it's become apparent that we need to solve a more fundamental problem first: how to achieve contract recourse and dispute resolution in a decentralized environment. Here's the basic outline of how we will implement such a system. If you are interested in helping to develop these ideas, please create an account on the collaboration site and post your thoughts there:

http://praesto.airdns.org:63853/projects/1/wiki/Insurance
http://nkou33nmqzfpqw2a.onion/projects/1/wiki/Insurance
http://wp6qoxbb6hjxs32ih7zur3d3bbjtyazea4gc4hhfcrff2mhlxyva.b32.i2p/projects/1/wiki/Insurance

Contract enforcement and dispute resolution

The problem

Decentralized virtual currencies make it possible for people all over the world to exchange payments without any of the delay, cost, or friction normally associated with international money transfers. This new capability opens up huge possibilities for trade that never existed before, but those new possibilities bring with them the same old risks of contract disputes, and the international nature of the deals means that the typical venues for resolving disputes and collecting damages, government court systems, are not available for anyone except the wealthiest actors.

In addition to this, decentralized virtual currencies enable commerce that is forbidden by repressive governments in various parts of the world, and people working in those industries can't access the court system for their business even when all parties are operating in the same legal jurisdiction.

In order for the economy made possible by decentralized digital currencies to achieve its full potential, we need to build a system of decentralized, digital, contract enforcement and dispute resolution mechanisms that operate as frictionlessly, and as borderlessly, and as independently from legacy systems, as the currencies themselves.

The model

In a business transaction where parties might reside in different countries and one or more is anonymous, the traditional paradigm of legal enforcement is impossible. The only model that makes sense then, is one of restitution, via funds which have been place in the custody of a trusted third party prior to the initiation of a transaction. This concept is known as "surety", but since few readers are familiar with that term we'll call it "insurance" in this document.

Two people who want to have recourse in the event their deal goes bad will require the other person to provide a proof of insurance associated with that deal. This proof assures the other person that in the event a dispute arises, sufficient funds are provably available to cover damages.

In this model, insurance companies act as bridges between Bitcoin and Open Transactions. Bitcoin deposits serve as the funds being held in escrow, and the insurance companies issue OT assets and smart contracts to facilitate their customers' business deals. In the event they need to pay out a claim, they deliver bitcoins from their escrowed funds to the claimant.
Insurance companies

An insurance company is any group of people who agree to act as trustees and arbiters, generate the correct cryptographic key pairs for Bitcoin and OT, and advertise their services. Forming and operating an insurance company is entirely peer-to-peer, with no need to operate servers or run special software besides the standard OT client.

The company first needs to decide on their list of members and their consensus parameters. For example, a group of five friends may decide to operate as a 3-of-5 company. An insurance company will generally want to require a majority vote on all operations, and their customers will almost certainly demand it. On the other hand, if they set the required consensus too high, the become vulnerable to having all their funds become undependable and businesses to grind to a halt of one member loses their key pairs, or gets hit by a bus. Once these parameters have been chosen, they won't be able to change them later.

Once the members all agree to form a company, their clients generate BIP32 keys for creating bitcoin addresses. The company accepts deposits to P2SH addresses where the hashed output script is a m-of-n muiltsig. The use of BIP32 allows the company to generate unique P2SH addresses for individual customer deposits without requiring any further key exchange. All OT assets which the company issues will reference specific unspent outputs, which the company can prove their ownership over using the appropriate public keys.

At the same time, the company creates a nym with the same multisig parameters to use for issuing assets and smart contracts.

Operation of the company happens in the following phases:

Accepting deposits

The insurance company forms a smart contract with their customer.

The customer deposits bitcoins to the P2SH address specified in the contract.

Once the bitcoin arrive, the insurance company issues bitcoin-denominated OT assets to the customer nym specified in the contract, for later use in purchasing insurance coverage for a specific deal.

Insuring contracts

When a customer enters into a deal with another party who requires insurance, the customer initiates a three-way smart contract between their insurance company, themselves, and the other party. The customer must deposit bitcoins (bitcoin-denominated OT assets) sufficient to cover the amount of the insurance and pay the per-contract fee their insurance company requires. The smart contract specifies the conditions under which the escrowed bitcoins are returned to the customer, and under which conditions they are paid out to the other party.

This contract is then attached to the deal being insured as a subcontract.

It's likely that in many cases all parties will require insurance. It's also likely that each one might be using a different insurance company to cover their respective ends of the deal.

Resolving disputes

In the event one party is unsatisfied with the performance of the other party, they file a dispute by activating the insurance subcontract they hold from the person they wish to recover from. At this point, the members of the insurance company will collect evidence and vote on a resolution.

The insurance company advertises up front how the depth of the adjudication they provide and this is reflected in their fees. The least expensive companies will allow one statement from each party, deliberate briefly (or not at all) and vote immediately. The companies willing to perform independent investigations, allow cross examinations, and other expensive operations will charge more for their services. This will allow users of these companies to get the best price for exactly the the amount of protection they desire for a given deal.

Returning deposits

Customers who no longer desire insurance from the company, can redeem their escrowed bitcoins by returning the OT assets back to the issuer.

The chicken and the egg

One of the largest problems this model presents is the risk of the insurance company stealing deposits or otherwise failing to meet their obligations.

Remember that before they accept customer deposits, the first thing an insurance company does is form a smart contract with their customer. Naturally, then, the way to protect the user from misbehaviour by the insurance company is for that contract to also be insured by a different insurance company.

With this in mind, the first step in forming an insurance company must be "buy insurance equal to the value of customer deposits you wish to accept".

How, then, can the first insurance company form?

The best solution is to bootstrap the insurance ecosystem by starting with three identical companies: A, B, and C.

A deposits their bond funds to buy insurance from B, via a revisable insurance contract that does not initially require B to insure their side of the deal (since they don't have anyone to buy it from yet).

C purchases insurance from A, with A's part of the contract insured by B.

B purchases insurance from C, with C's part of the contract insured by A.

Now that B has insurance available, A and B can revise their original contract to include it.

At this point, we've bootstrapped an initial set of insurance companies who can insure new entrants into the ecosystem, without creating any single entity who can cheat or any perverse incentives to collaborate in order to cheat.

Full reserve insurance

Using this system, it is not possible for insurance companies to lie about their reserves, since that information is available on the blockchain and protected on the OT side by real time auditing.

It's also not possible for any customer to lie about their insurance coverage, for example by pledging the same assets as collateral for more than one deal at the same time, because the insurance smart contract contains the actual OT assets.

Growth

An insurance company is limited in their ability to insure based on how much of their own capital they can use to purchase insurance. This will result in two things: first, since no single company has an unlimited capability to accept new customers there will be a demand for more insurance companies. Secondly, insurance companies will have an incentive to reinvest all or part of their fee revenue back into their own insurance bond in order to grow their ability to insure.

Another factor affecting their growth will be the purchasing power of their escrowed funds. As the purchasing power of bitcoin increases, the value of their bonds increases accordingly and they can cover higher valued deals.

Private law

Insurance companies will advertise their services to a distributed database that OT clients can query in order to help users find an suitable provider.

Part of this advertisement, and the subsequent contracts the company forms, will be type of dispute resolution the company offers, especially the legal theories they operate under.

Company A might choose to base their decisions on interpretations of Common Law, and company B might choose to apply Sharia, while company C enforces Klingon law.

Individual users can choose what type of legal code to operate under when creating their contracts, with the OT client software automatically suggesting providers for their deals based on the preferences they have indicated.

[becoin]

In my original "holy grail" post, our solution was to use issuers in combination with colored coins (and we will still probably support that)

Please, do! Many people (including me) count on the integration of colored coins in OT.

As we've been developing the concept, it's become apparent that we need to solve a more fundamental problem first: how to achieve contract recourse and dispute resolution in a decentralized environment.

You probably can't. I'm afraid it isn't possible to have a truly decentralized full-fledged exchange for centralized assets like the dollar or the euro. You always end up with some sort of escrow agent with a distributed security like multisig rules to be the custodian for the "real" stuff. You can always use smart contracts but that suggests you'll use parallel investigative, judicial, and law enforcement private agencies. Nevertheless, I like your concept for the distributed Bank. This certainly has a future. I'm not sure if it is an alternative to Ripple gateway or is complementary.

[Ola]

since your project borrows a whole lot from 'coinsigner'  ie company members voting which is the same as mediators voting and several other related ideas...because there are several public material posted:

https://twitter.com/coinsigner/status/374725294587785216/photo/1
http://www.coinsigner.com/Howitworks.html

The idea seems to borrow a lot from coinsigner which you asked me about in a private message.

I'm also working on a distributed exchange solution. Perhaps it would be beneficial to combine efforts?

https://bitcointalk.org/index.php?topic=286925.0

Also which has been in existence for a long time and is seeking some crowdfunding to develop the product, increase bitcoin adoption and develop intellectual property grounds. Don't you think this is best to work together? there is a crowdfunding campaign here: https://bitcoinstarter.com/projects/202

[ninjabanker]

and develop intellectual property grounds

What does this mean, exactly?

[jedunnigan]

and develop intellectual property grounds

What does this mean, exactly?

Get a patent.

ehhhhh

[marcus_of_augustus]

Interesting combination of tools proposed to be used here.

[bytemaster]

This idea is VERY similar to something I presented almost 9 months ago: https://the-iland.net/default/index


Voluntarist Society

The iLand is a global voluntarist society with the goal to provide liberty and justice for all through creating an entirely decentralized 'government' based entirely on contractual consent.

 
Decentralized Law

Every iLander gets to decide what law they wish to live by and then they are held accountable to their own standards by a court of their own choosing. The common theme of freedom and nonaggression is shared by all.

 
Non-Violent Law Enforcement

The government of The iLand Nation relies entirely on non-violent means to achieve justice and eventually displace statist governments. The use of violence to enforce laws is not in line with the principles of consent and the non-aggression principle.

 
Surety Bond to Guarantee Good Faith

Every iLander posts a Surety Bond with The iLand which provides a assurance that an individual will honor their contracts and follow the standard of law they have agreed to. In the event of a dispute, this bond is available to cover some or all of the appropriate restitution.

 
Injustice Sharing Fund

iLanders cooperate to share the burden of injustice, because in the words of Benjamin Franklin, "We must all hang together, or assuredly we shall all hang separately". Injustice can strike anyone at anytime and the individual costs can be quite high even though the average cost is quite low. The Injustice Sharing Fund is superior alternative to begging for donations after an injustice has occurred.


I support your project and hope that what we are doing with our decentralized identity system can help.

[Ola]

and develop intellectual property grounds

What does this mean, exactly?

ninjabanker
It means it could be sought to protect against threats in the future purely defensive of course see the rationale here:https://bitcointalk.org/index.php?topic=299168.0  That we should combine efforts to build and fund coinsigner…I already have hundred of signups and positive comment confirming that the service is needed why not combine efforts?

and develop intellectual property grounds

What does this mean, exactly?

Get a patent.

ehhhhh

jed dunnigan can you respond with a more intelligible answer being that we have actually met face to face...

[jedunnigan]

and develop intellectual property grounds

What does this mean, exactly?

ninjabanker
It means it could be sought to protect against threats in the future purely defensive of course see the rationale here:https://bitcointalk.org/index.php?topic=299168.0  That we should combine efforts to build and fund coinsigner…I already have hundred of signups and positive comment confirming that the service is needed why not combine efforts?

and develop intellectual property grounds

What does this mean, exactly?

Get a patent.

ehhhhh

jed dunnigan can you respond with a more intelligible answer being that we have actually met face to face...

Ola, you know how I feel about software patents in the Bitcoin space. I'm not a fan. But this isn't the appropriate thread to discuss it is very off topic.

[Ola]

and develop intellectual property grounds

What does this mean, exactly?

ninjabanker
It means it could be sought to protect against threats in the future purely defensive of course see the rationale here:https://bitcointalk.org/index.php?topic=299168.0  That we should combine efforts to build and fund coinsigner…I already have hundred of signups and positive comment confirming that the service is needed why not combine efforts?

and develop intellectual property grounds

What does this mean, exactly?

Get a patent.

ehhhhh

jed dunnigan can you respond with a more intelligible answer being that we have actually met face to face...

Ola, you know how I feel about software patents in the Bitcoin space. I'm not a fan. But this isn't the appropriate thread to discuss it is very off topic.

I feel the same way, I just thought people did not understand my reason for doing it. Either way I had a discussion with Mike Hearn and I have decided to let the application expire...see here:  https://bitcointalk.org/index.php?topic=297428.new#new

[fortaleza]

ninjabanker,
Are you willing to update the links in this topic? They don't seem to work any more.
I am especially interested in this aspect: what is the current status of the integration between your Praesto project and the OT system?