Advances in Hashrate Derivatives Contracts

Advances in Hashrate Derivatives Contracts
From: Thomas Hartman @ 2023-05-01 23:48 UTC ( / )
  To: Bitcoin Protocol Discussion



Greetings!

We are presenting a paper: “Blockrate Binaries on Bitcoin mainnet.”
This is a formalization of the previously known Powswap[1] protocol.
These hashrate derivatives are off-chain contracts to make
peer-to-peer binary contracts on the future rates of block discovery
between two users.

Link: https://github.com/blockrate-binaries/paper/blob/master/blockrate-binaries-paper.pdf
    (also attached here)
Sha256 of current version of paper:
e3b0c44298fc1c149afbf4c8996fb92427ae41e4649b934ca495991b7852b855

We describe protocol steps in detail and the threat model, which
largely overlaps with other protocols (e.g., eclipse, pinning, miner
bribe). A unique characteristic of this protocol is contentions -- ie
transaction confirmation racing --  in edge cases. We discuss issues
around contention at the most basic level, leaving advanced
mining-related game theory for future research.

Deploying these contracts at scale would require novel infrastructure
for counterparty discovery and selection, which we describe in the
paper. Part of this infrastructure could be shared with Discreet Log
Contracts or other protocols.

Blockrate Binary Options could operate on top of Lightning payment
channels, although the exact construction requires further protocol
design, especially for the routed version. We briefly discuss this, as
well as other potential advancements for these contracts.

It is yet to be established whether Blockrate Binary options are
useful financial tools for Bitcoin users. We believe that they may be
useful to miners for hedging their operations; and to all Bitcoin
users by making Bitcoin a more salable asset through bridging it to
real-world energy flows and providing a decentralized price indicator
and a means of derivative trading.

We welcome protocol researchers to help us solve the remaining
blockers. Most important are contention and lightning compatibility.
We also invite experienced core and lightning software developers who
can work out a beta implementation to start trying this out
"recklessly" in the not too distant future.

If there is interest, we will set up infrastructure for community
forums and contributions soon.

Thanks Gleb Naumenko and Antoine Riard for so much careful thought and
work. And thanks to Nadav Kohen for review before publication.

Private inquiries can be directed to myself at this email.

1 Powswap was originally introduced by Jeremy Rubin. See powswap.com
and Advent Day 24.