Formalizing Cost Fairness for Two-Party Exchange Protocols using Game Theory and Applications to Blockchain (Extended Version)

TL;DR

This paper introduces a formal framework for cost fairness in two-party exchange protocols, especially relevant for blockchain environments with significant transaction costs, revealing fundamental limitations in achieving fairness.

Contribution

It formalizes cost fairness using game theory and demonstrates that in blockchain settings, true cost fairness cannot be guaranteed when one party initiates the exchange.

Findings

Cost fairness cannot be achieved in environments with non-negligible transaction costs.

The paper provides a formal definition of cost fairness for exchange protocols.

Analysis applies to blockchain protocols like Ethereum.

Abstract

Existing fair exchange protocols usually neglect consideration of cost when assessing their fairness. However, in an environment with non-negligible transaction cost, e.g., public blockchains, high or unexpected transaction cost might be an obstacle for wide-spread adoption of fair exchange protocols in business applications. For example, as of 2021-12-17, the initialization of the FairSwap protocol on the Ethereum blockchain requires the selling party to pay a fee of approx. 349.20 USD per exchange. We address this issue by defining cost fairness, which can be used to assess two-party exchange protocols including implied transaction cost. We show that in an environment with non-negligible transaction cost where one party has to initialize the exchange protocol and the other party can leave the exchange at any time cost fairness cannot be achieved.