A Blockchain-based Iterative Double Auction Protocol using Multiparty State Channels

TL;DR

This paper introduces a decentralized, trustless iterative double auction protocol leveraging blockchain, smart contracts, and multiparty state channels to eliminate reliance on trusted third parties and enhance security.

Contribution

It proposes a novel extension of state channels for multiparty computation and provides a formal security proof and practical implementation of the framework.

Findings

Feasibility demonstrated through experiments

Reduced blockchain transactions in the auction process

Secure against adversarial attacks

Abstract

Although the iterative double auction has been widely used in many different applications, one of the major problems in its current implementations is that they rely on a trusted third party to handle the auction process. This imposes the risk of single point of failures, monopoly, and bribery. In this paper, we aim to tackle this problem by proposing a novel decentralized and trustless framework for iterative double auction based on blockchain. Our design adopts the smart contract and state channel technologies to enable a double auction process among parties that do not need to trust each other, while minimizing the blockchain transactions. In specific, we propose an extension to the original concept of state channels that can support multiparty computation. Then we provide a formal development of the proposed framework and prove the security of our design against adversaries. Finally, we develop a proof-of-concept implementation of our framework using Elixir and Solidity, on which we conduct various experiments to demonstrate its feasibility and practicality.