Contract enforcement via the block chain

[Sjalq]

Hi gents,

Sorry if this has been posted here before but I just had to get it out of my head. Moderators please move if this is the wrong board.

I've been thinking about a contract/payment enforcement mechanism that uses the block chain and independent arbitrators to ensure that parties are paid and happy with their transactions.

Basically it boils down to:
Party A sells good or service to B for some price. Party A and B decide beforehand on an arbitrator C, who they both must approve to settle the dispute if either one is unhappy with the transaction. When B pays A he does so using a special transaction that contains the details of the transaction along with the appointed arbitrator C and perhaps an arbitration fee (freewill equal amount from both A and B) that will be paid out if the transaction needs arbitration and some smaller fee if it does not. The bitcoins are transferred to a special account that only C can control if A and/or B are unhappy and then only to have the funds transferred to either A or B in some distribution. 

Upon conclusion of the transaction both A and B generate another "transaction" saying whether they were happy or not with the previous one. If both were happy then the funds clear to A and C gets the lesser of the two arbitration fees. If B is unhappy and A has no objections then the value of the original transaction is sent back to B and C gets the arbitration fee.

If A and B are unhappy and a dispute arises they can both contact C who can assess the situation and effects a transaction in either B or A's favour or some split of the monies between them. In this case the system generates a transaction or two from C that looks like a payment from the special account to A or B (or both in some distribution). Now C gets the full arbitration fee.

These types of transactions should be able to be contained in the same block chain if I understand the process correctly. This also allows some measure of voluntary reversibility of bitcoin transactions that someone could submit to if they choose. Other transaction would continue as normal.

A, B and C could remain completely anonymous if they chose existing only as accounts, perhaps with conflict ratings attached to them. Contact information could be included in the original contract transaction. Perhaps also an expiry date could be set on the contract transaction that if resolution is not found within a certain period then the funds  are split in some fashion among A and B, with C waiving their fee.

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[lemonginger]

What would be the benefits of this over third party escrow or arbitration services that don't require changes to the block chain?

[Sjalq]

LOL at your pic, I assume you do not support the idea that Anarchy is order.

Very little, except that it would make for some form of transaction roll-back for bitcoin built into it. Also if such an idea were implemented with a block chain approach we might as well all hash the same thing.

It might also embed some additional uses into bitcoin that currently rely on external implementations.

Distributed exchanges would be one step closer to bitcoin itself, removing some of the weaknesses of centralized exchanges.

[dacoinminster]

I think you will find this thread interesting (about distributed contracts): http://forum.bitcoin.org/index.php?topic=8821.0

[Karmicads]

I think you will find this thread interesting (about distributed contracts): http://forum.bitcoin.org/index.php?topic=8821.0

The P2P transaction embellishments seem to be coming thick and fast now. I have also posted an idea called 'bitstock', but it involves a separate network and blockchain, for not only contracts but a diversified stock exchange, payment gateway and P2P escrow. It avoids modifications to the blockchain, network or protocol. Existing clients would function as usual. Only users who wish to trade with duplex accountancy, would have to upgrade. No third parties either with this one.

You could still get a merchant bank account and trade in local currency for a nominal fee. Now you mention it, proper contracts with repeat payment schedule's a graphical form builder and client support database, would make a nice extension too. Better to build in functionality that needs adding than be left out in the cold. 

[sacarlson]

MultiChain branch of bitcoin has sendescrow and redeemescrow features added and tested working on the testnet and weedsnet chain.  at some point mainnet will start to allow transactions of this type into the chains of bitcoin.  http://forum.bitcoin.org/index.php?topic=24209.0  also see https://github.com/sacarlson/MultiCoin/blob/master/doc/README_escrow.txt  details on how to setup such a transaction.