Hashcashed Reputation with Application in Designing Watchtowers

TL;DR

This paper introduces a reputation system for blockchain watchtowers that incentivizes honest behavior and competitive service pricing, enhancing trust and efficiency in blockchain monitoring markets.

Contribution

It presents a novel reputation mechanism based on hashcashed proofs of misbehavior, specifically designed for blockchain watchtowers, fostering honest conduct and competitive dynamics.

Findings

Reputation system effectively incentivizes honest watchtower behavior.

Market competition leads to reduced service fees.

Proof-of-misbehavior enhances trust in blockchain services.

Abstract

We propose a novel reputation system to stimulate well-behaviour, and competition in online markets. Our reputation system is suited for markets where a publicly-verifiable "proof-of-misbehaviour" can be generated when one party misbehaves. Such markets include those that provide blockchain services, such as monitoring services by watchtowers. Watchtowers are entities that watch the blockchain on behalf of their offline clients to protect the clients' interests in applications such as payment networks (e.g., the Lightning network). In practice, there is no trust between clients and watchtowers, and it is challenging to incentivize watchtowers to well-behave (e.g., to refuse bribery). To showcase our reputation system, in this work, we create an open market of watchtowers, where watchtowers are motivated to not only deliver their promised service but also reduce their service fees in competition with each other.