A Blackcoin developer has created two new protocols that aim to eliminate risk of default during peer-to-peer (p2p) transfers. The protocols are BitHalo for Bitcoin and BlackHalo for Blackcoin.
What is Blackcoin?
Blackcoin is a rare breed in the sense that it’s secured entirely by proof-of-stake. Such hashing secures transactions based on proving funds ownership. A hash is created out of the transacting party sending funds plus a preset reward to him/herself. The other notable coin employing such technology is Peercoin, but it still utilizes proof-of-work to validate the hashing performed through its proof-of-stake algorithm.
As such, Blackcoin isn’t susceptible to the risk of 51% attacks as found with coins employing only proof-of-work technology. It also consumes far less energy and transaction times are as quick as 1 minute.
The new protocols seek to provide for decentralized exchange with two-party escrow, unhackable wallets, the absence of a “middle coin” (such as Swarmcoin), and other economical benefits in the future.
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There already exists a slew of other systems catering to decentralized exchange. Here, “Double Deposit Escrow” is used, whereby the penalty for defaulting on a contract is less than the potential reward. Assets are exchanged once the deposits are made. If one party doesn’t follow through, the other can break the contract and have his deposit refunded. This, in a way, gets the best of both worlds: cryptocurrency is touted as irreversible, not allowing for chargebacks. This can be as much of a con as it is a pro, depending on who the cheater is. “Conditional reversibility” may be a model for the ideal solution.
Said Blackcoin developer David Zimbeck:
“The protocol uses risk, reward and agreement to circumvent malleability, which was ironically once thought to prevent these types of protocols. Almost every sector of the economy that involves third parties runs the risk of loss to the consumer. This protocol now gives individuals full control over who they decide to trust and how they decide to structure that trust.”
Blackcoin’s proof-of-stake scripting system is used in the protocol. In the same way it enforces the integrity of the ledger, so also the integrity of contracts.
One limitation may be how much users are willing/able to “lay out” in exchange for eliminating the risk of default.
One also observes that right now, the applicability of such trust systems is confined to within the digital universe they operate. Such systems, by definition, can never guarantee the transfer of physical goods.
What will be interesting to see, however, is how such systems can evolve and integrate into our existing legal/centralized framework of digital assets and ledgers. This can have a far greater impact on the usefulness of such systems and the extent of their advancement. For example, if something like (real) futures contracts are legally traded this way, counterparty risk can be eliminated without having to pay the middlemen.