Cryptographic and Financial Fairness

TL;DR

This paper introduces the concept of financial fairness in multi-party computation, analyzing its theoretical foundations, practical implications, and evaluating existing protocols for their fairness properties.

Contribution

It formally defines financial fairness, proves related impossibility results, and assesses real-world protocol performance, highlighting which protocols achieve this fairness.

Findings

Penalty protocols of Kumaresan and Bentov are financially fair.

Ladder protocol and variants fail to achieve financial fairness.

Practical experiments show the impact of fairness deficiencies in real-world settings.

Abstract

A recent trend in multi-party computation is to achieve cryptographic fairness via monetary penalties, i.e. each honest player either obtains the output or receives a compensation in the form of a cryptocurrency. We pioneer another type of fairness, financial fairness, that is closer to the real-world valuation of financial transactions. Intuitively, a penalty protocol is financially fair if the net present cost of participation (the total value of cash inflows less cash outflows, weighted by the relative discount rate) is the same for all honest participants, even when some parties cheat. We formally define the notion, show several impossibility results based on game theory, and analyze the practical effects of (lack of) financial fairness if one was to run the protocols for real on Bitcoin using Bloomberg's dark pool trading. For example, we show that the ladder protocol (CRYPTO'14), and its variants (CCS'15 and CCS'16), fail to achieve financial fairness both in theory and in practice, while the penalty protocols of Kumaresan and Bentov (CCS'14) and Baum, David and Dowsley (FC'20) are financially fair. This version contains formal definitions, detailed security proofs, demos and experimental data in the appendix.