[bisq-network/proposals] Proposal for new trade protocol without the need for arbitrators (#52)

Fri Oct 26 11:12:12 UTC 2018

Here are some of my random thoughts, feel free to ignore.

If I may be so bold as to summarize: This proposal replaces the single arbitrator with a bureaucratic democracy of the DAO. If so, then it seems worse to me as voting has its own problems; Each member of the DAO would have to spend their time, attention and energy on learning about all the reimbursement cases so they can vote properly, and they would have less incentive to do this. It seems more incentive-aligned to have a single person be the arbitrator, who does the work in return for their arbitration fee. Obviously I'd need to analyze what I just said more to flesh out the incentives, right now it's just a feeling.

This proposal would benefit by explaining more about exactly how this new 2of2 multisig method avoids the blackmail problems of the old 2of2 method.

If there are a lack of arbitrators then they should get paid more. This would incentivize more people to become arbitrators. Just throwing some numbers out: if an arbitrator gets involved in a deal they should earn a high fixed fee plus 20% of the trade amount, costs paid by the loser. If they don't get involved then they earn nothing. The best analogy to look at is the judicial system in normal business. Going to a courtroom and paying for lawyers is very expensive so is only used as a last resort, more than 99% of all business contracts are actually settled cooperatively without one side suing the other. Judges and lawyers are highly skilled and highly paid professionals, and they are avoided if the contract is settled cooperatively. Similarly in bisq arbitrators must be high-knowledge, but if a buyer and seller agree then they don't even need to pay an arbitrator, their two private keys are enough. Thinking this way should drastically reduce the workload on arbitrators, and allow a small number of highly-knowledgable arbitrators to serve the entire bisq system.

Mediators could be introduced into the 2of3 model as well. The high cost of arbitration incentivizes the buyer and seller to come to an agreement, they could look for third-party mediators to help them and figure out issues with bugs, banking problems and user mistakes. The buyer and seller could together even pay a mediator they find, which would incentivize mediators and still be cheaper than using arbitrators, and wouldn't burden the arbirators with more workload.

Some other thoughts about the problems of arbitrators:

* Why does non-english speaking arbitrators mean bisq cannot scale? I'm wondering because multinational corperations are able to scale to many different languages and locations, they just need somewhere along the chain of command somebody who speaks more than one langauge, or translators. Maybe Bisq could use machine translation, I dont know how well machine translation works for chinese or hindustani, but for many european languages it works pretty well.

* As for legal risks to arbitrators, from my perspective [the point of bitcoin and bisq is to break the law](https://github.com/libbitcoin/libbitcoin/wiki/Axiom-of-Resistance), we can expect that eventually almost all jurisdictions will ban bitcoin and bisq. The way to beat that is to be small enough to hide and be decentralized enough so that each participant shares only a small amount of risk. Arbitrators are well suited to this because it sounds like they can easily operate only behind tor and not have to give up any personal information, also they can arbitrate from anywhere in the world via the internet and so could be out of the reach of a particular state. So for the legal risks I say arbitrators should tolerate them because they have the technology to do so effectively and they get paid for it.

* Noted that it is expensive, but in the cooperative case where buyer and seller agree, no arbitration fee needs to be paid because the arbitrator didn't do anything.

* About being inflexible. How about to make it possible for an arbitrator to create a signed message with the meaning of "for the next two weeks this account wont be arbitrating", that message is somehow broadcast or published on a notice board. Then before a trade starts and an arbitrator is chosen, the buyers and sellers obtain all these messages and simply don't use an arbitrator's pubkey if they are on leave. This would allow an arbitrator to go on holiday, take sick leave or anything else. They could also make known working times (e.g. an arbitrator works only 9am - 5pm UTC)

Thoughts on altcoins and fiat:

* For altcoins, atomic swaps are probably a much better solution than anything else because they essentially remove counterparty risk and don't require an arbitrator or mediator at all, so it is much cheaper and more predictable. Note that the naive version of atomic swaps is vulnerable to a holdup attack, because essentially one of the traders purchases an option to trade, and they could just do nothing up until the timeout if they want. But this problem shouldn't be too hard to solve with a slightly different way of doing atomic swaps, these have been written about somewhere, try searching the web.

* On the other hand, with altcoins and atomic swaps, possibly the whole system of bisq is not needed. It could be replaced with a simple website for only order matching and have all the trades happen via atomic swaps directly between counterparties. The website could maybe be on a tor HS so the site can be anonymously hosted in a censorship-resistant way. Note that any cryptocurrency which uses ECDSA and nLockTime can do atomic swaps using 2P-ECDSA and scriptless scripts. See the conference talk [here](https://youtu.be/3mJURLD2XS8?t=3623) with transcript [here](http://diyhpl.us/wiki/transcripts/scalingbitcoin/tokyo-2018/scriptless-ecdsa/). So not all cryptocurrencies (e.g. Monero) need a scripting language.

* Right now most of Bisq's trade volume right now is altcoin/btc not fiat/btc. Then using atomic swaps would drastically reduce the workload on arbitrators. 

* Fiat trades are more complicated and more interesting IMO, atomic swaps obviously dont work because fiat is not a cryptocurrency. It's unlikely that pegged fiat coins will ever work, because the pegging institution is a central point of failure that can always be attacked. Most of my thoughts on arbitrators are related to fiat, because we can expect the fiat banking system will throw all kinds of tricks at Bisq in the coming years, to me highly-skilled human arbitrators seem the most flexible way to deal with them.

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