[Cryptography] Cryptocurrency Exchange without a trusted third party

[Ron Garret]

On Jan 14, 2017, at 5:25 AM, Alfie John <alfie at alfie.wtf> wrote:

> How can they exchange cryptocurrencies without a trusted third party?

How can anyone exchange anything without a trusted third party?  There is nothing special about cryptocurrencies in this regard.  When people engage in a risky transaction they use an escrow service.  Escrow could be implemented with a blockchain to eliminate the trusted third party, but then you have the problem of how to compensate miners.  One way or another you have to pay for the service.

What I still don’t understand is why people don’t want to use trusted third parties.  A TTP is vastly more efficient than a block chain.  If you think about it, a blockchain is just a distributed TTP.  The theoretical advantage of this is that no one actor can defect and enrich themselves by acting alone.  In practice the actual constraint is that the computational cost of defecting is higher than one could reasonably hope to gain by doing so.  It is certainly possible to hijack the block chain, it’s just not lucrative enough for anyone to bother (yet).

It is worth noting, BTW, that the bitcoin block chain is *not* what provides security against theft.  The digital signatures do that, and those can be used with a TTP just as easily as with a blockchain.

BTW, an almost identical issue was discussed to death on this list last June under the subject “Proposal of a fair contract signing protocol.”  The bottom line is: it’s a theorem that it is impossible to design a protocol that has the desired properties if the actions of the actors are interleaved in time unless you use a TTP.

rg