P2P Foundation

The Foundation for Peer to Peer Alternatives

A project on Zero Information Banking, by Smari McCarthy

 Smari is asking for comments:


I've been experimenting with a line of thought to allow for p2p social
banking with a high level of privacy, but yet limiting the possibilities
for fraud.

 The approach I'm taking is based on zero-information proofs, utilizing
some features of public key crytpography. For example, the mechanism for
doing a trusted transfer is as follows:

   A - Alice's name
   B - Bob's name
   Sx(m) - Sign message m with x's private key
   Ex(m) - Encrypt message m to x using his public key
   Dx(m) - Decrypt message m using x's private key
   Vx(m) - Verify signature of message m using x's public key

       Alice wants to transfer 1000 to Bob. They want the amount of the
transfer to be secret, but they want their transfer to be accountable so
neither can cheat.
   Cheating is:
       Alice pretending not to have transferred
       Bob pretending not to have received the money
       Alice or Bob lying about how much was transferred
       Replay attacks - Bob using the same transfer repeatedly, or Eve
making Alice bankrupt by replaying the transfer
       MITM - Eve intercepts the transfer and meddles with the amount
or prevents it from getting to Bob

       They ask Trent (the trusted server - a broker) to be a witness,
but Trent isn't supposed to know enough about the transfer to be able to
tell anybody how much was transferred, only that it happened and, if
need be, he can verify which transfer it was.

       [implied: transaction identities and timestamps to prevent
replay; couldn't be bothered to work it in ;-)]

   Alice creates a transfer token p = 1000 and signs it with her public
key, Sa(p). Sends to Bob (Eb(Sa(p))).
   Bob Va(Db(Sa(p)))
   Bob signs and sends (Ea(Sb(Db(Eb(Sa(p)))))) = (Ea(Sb(Sa(p))) to
   Alice notifies Trent that a transfer has occurred, (Eb(Sb(Sa(p))),
Ea(Sb(Sa(p))), A, B).
   Trent saves this in his brokerage diary.
   Trent starts asking Alice and Bob questions at random.
       e.g., Trent asks Alice: What is the amount transferred
multiplied by 400?
               Alice responds:  Eb(p*400)
               Trent asks Bob: What number has the amount been
multiplied with in Eb(p*400)
               Bob responds: Et(Db(p*400)/p)
               Trent asks 4-5 questions like this, starting with Bob
and Alice interchangably (or randomly). If Trent always gets the correct
answer, he publishes a certificate:
                       St(Eb(Sb(Sa(p))), Ea(Sb(Sa(p))), A, B)
               Alice stores a transfer out on her ledger:
                  (-p, St(Eb(Sb(Sa(p))), Ea(Sb(Sa(p))), A, B), A, B)
               Bob stores a transfer in on his ledger:
                  (p, St(Eb(Sb(Sa(p))), Ea(Sb(Sa(p))), A, B), A, B)

This essentially allows Trent to verify that a transaction has occurred
from Alice to Bob, and they agree on the amount transferred on both
ends, and that nobody has tampered with the transaction... all without
Trent ever knowing how much is being transferred. As zero information
proofs go, this is fairly simple - the only "innovation" (if it could be
called that :P) here is the use of "accounting logic"...

Now, this is all well and good, although an early critique of this is
that it doesn't immediately guard against collusion between Eve and
Trent; or indeed Trent being an impostor. The inclusion of a trusted
third party is, unfortunately, an unavoidable fact; but since it's a
zero information proof arbitrarily many trusted parties can be included
in the process... besides, there's an assumption here that validation of
Trent's identity is done prima facie, and that some mechanism is used to
enforce his trustworthiness... but what that mechanism is, I don't know.

So, the three features needed, imo, are:

 * Zero information transfers (transfer between two parties such that
neither party can cheat, without any third party knowing how much was
transferred) (done-ish)

 * 1 bit "can X pay"? (one party can, given the permission of the other,
find out whether the latter can afford to pay a certain amount, without
being given any information about how much that party has)

 * circuitous roundups (an algorithm allowing circular debt elimination;
if A owes B and B owes C and C owes A, then the minimum of their common
debt can be eliminated)

... I haven't yet figured out if these three are sufficient for a
complete system (assuming that we have key exchange and such out of the
way). Probably not.

For the 1 bit "clearance", Alice wants to know if Bob can afford to pay
her 1000 CryptoDollars - this is a prerequisite to her accepting a
transaction from him, since no other entity will be able to confirm this
[having such an entity would cause an authority disequilibrium in the
system, which I'm trying to avoid...]. Bob can choose to show Alice his
account (showing that you have the money is the traditional method, but
harder in digital currencies --), but not without revealing all of the
transfers and amounts transferred to date; or at least back until the
previous roundup [a feature of the system].

Some requirements of such a system are that
 - Bob must give permission before Alice is allowed to learn the value
of the bit.
 - Bob must not be trusted to give the correct value of the bit.
 - Trent can be asked, but only questions that he has the answer to...

Circuitous roundups are easy in the case where a trusted party (Trent)
has full knowledge of the system, but full information very quickly
becomes impossible if you have a federated or truly p2p system, and we
don't want anybody to have that much information anyway.

For the record, I'm not adverse to probabilistic approaches - heck, zero
information proofs like the one above are almost always probabilistic.
I'm fairly sure that some would argue against having a probabilistic
banking system, but they don't understand the law of large numbers and
should read up on it.. ;)

... to address the most obvious criticism of this, it's a very clearly
technocratic approach with a lot of implicit faith in the idea of public
key crypto and doesn't take human nature much into account. Well, yes.
If I were trying to build a system to regulate human nature, it'd
probably involve a lot of violence and be ultimately unsuccessful -
that's not the goal. The goal is to take the currency-trade model that's
been working well in meatspace and raise it to a level where it becomes
independently reliable in cyberspace. The more successful such an
attempt is, the less regulation of human behaviour is necessary to
ensure the stability of the monetary system. "Stability by design"
versus "stability by policy" is a good direction to go in, even if we
can't get there.


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