An Incentive-Compatible Smart Contract for Decentralized Commerce

TL;DR

This paper introduces a blockchain-based smart contract for secure, incentive-compatible transactions of non-digital goods, using game theory to ensure honest behavior and extending to multiparty scenarios.

Contribution

It presents a novel smart contract design that incentivizes honest behavior in decentralized commerce and analyzes its security under various assumptions.

Findings

The honest strategy is secure if the arbiter favors honest parties.

Replacing the arbiter with a coin toss still maintains security under relaxed conditions.

The contract can be generalized for multiparty transactions with fee amortization.

Abstract

We propose a smart contract that allows two mutually distrusting parties to transact any non-digital good or service by deploying a smart contract on a blockchain to act as escrow. The contract settles disputes by letting parties wager that they can convince an arbiter that they were the honest party. We analyse the contract as an extensive-form game and prove that the honest strategy is secure in a strong game-theoretic sense if and only if the arbiter is biased in favor of honest parties. By relaxing the security notion, we can replace the arbiter by a random coin toss. Finally, we show how to generalize the contract to multiparty transactions in a way that amortizes the transaction fees.