Subject: [Bitcoin-development] Trusted identities

From: Peter Todd <[email-masked]>
Date: Thu, 26 Apr 2012 11:49:28 -0400

It recently occured to me that we can use the public nature of the block
chain to create trusted identities, for a specific form of trust.

Lets suppose Alice has some bitcoins held at bitcoin address A. She
wants to establish trust in the "identity" associated with the ECC
keypair associated with A, for instance for the purpose of having other
users trust her not to attempt to double spend. Since the trust she
seeks is financial in nature, she can do this by valuing the identity
associated with A, by delibrately throwing away resources. A simple way
to do this would of course be to transfer coins to a null address,
provably incurring a cost to her.

A more socially responsible way would be for her to create a series of
transactions that happen to have large, and equal, transaction fees.
Bitcoin makes the assumption that no one entity controls more than 50%
of the network, so if she makes n of these transactions consecutively,
each spending m BTC to transaction fees, there is a high probability
that she has given up at least n/2 * m BTC of value. This of course is
all public knowledge, recorded in the block chain. It also increases the
transaction fees for miners, which will be very important for the
network in the future.

Now Bob can easily examine the block chain, and upon verifying Alice's
trust purchase, can decide to accept a zero-confirmation transaction at
face value. If Alice breaks that promise, he simply publishes her signed
transaction proving that Alice is a fraudster, and future Bob's will
distrust Alice's trusted identity, thus destroying the value needed to
create it.

In effect, we now have a distributed green address system.

Now Alice could try to mount a double-spend attack on a whole bunch of
people at once, hoping to have them all accept the transaction. However
as it is the "just trust them" model works pretty well already.

A good usecase for this idea, beyond the obvious fast payments
application, is a distributed anonymizer. Alice can now publish her
request to anonymize coins, and other trusted identities can make their
bids. If Alice accepts a bid from Bob, she will want Bob to send her the
anonymized coins *prior* to her transaction going through, thus breaking
the temporal connection between the transactions. Now Alice can give Bob
the signed payment transaction, and Bob can submit his payment
transaction to the network first, knowing that Alice isn't going to try
to rip him off. Bob can also have a trusted identity which signed the
contract for the anonymizer transaction, and similarly if he rips Alice
off, she can publish it for the world to see.

A more subtle effect, is this makes sybil attacks more difficult. To
pretend to be a thousand identities is going to now require 1,000 * n
coins, and attempting to pull this attack off inherently strengthens the
bitcoin network. Obviously we can apply this principle to other things
like tor nodes as well.

-- 
http://petertodd.org 'peter'[:-1]@petertodd.org