As a fledgling field, cryptocurrency and its surrounding ecosystem could be attractive to scammers. A system in which transactions are effectively impossible to reverse once completed, coupled with the ability to anonymize oneself, opens up potential opportunities for bad actors. The fact that large sums of money are moved across crypto-networks daily also paints targets on the backs of virtual currency users. This is especially dangerous for users new to crypto, those who are less technologically inclined, or those who can’t be bothered to do their due diligence.
A prevalent issue that often arises when transacting with strangers across a network is trust. When a person can’t trust a stranger/third-party/middleman, they’re able to rely on blockchain technology, and more specifically, Ethereum’s executable distributed code contracts (EDCCs). The problem is that a contract on the blockchain is only as reliable as the information it’s fed via user input or external oracles. Burnable payments attempt to solve a main sticking point when transacting with strangers: the actual exchanging of goods and the payment for those goods.
Burnable payments don’t attempt to create a perfect system, from a game-theoretical point of view at least. Burnable payments are about creating a safe-enough system, in which scams could still happen but there’s less incentive for them. If a scammer sees an easier way to make quick money, they’ll likely move in that direction.
The idea is that a buyer shows a seller they’re willing to spend (burn) their money (ETH) by locking up their coins in a Burnable Open Payment (BOP) contract. Once in the BOP contract, that buyer’s ETH is out of their wallet and ready to be paid to the seller. However, only the buyer can release that payment to the seller. This means that the buyer will show that they have the funds to pay for what they’re after, so the seller will feel more comfortable rendering a service or sending a product. Once the product is received, the buyer can release the full or partial payment, depending on the quality of what they received. Logan Brutsche, the mind behind BOPs, wrote a post on Medium describing the way game theory plays into how a burnable payment contract works after a buyer puts up their Ether for potential burning, writing:
“At this point the payment is in a sort of limbo – it has left the buyer’s wallet, but has not yet been released to the seller’s wallet. There are two things to note about the game theory involved at this stage.
- The buyer has committed to spending the money, and won’t be able to recover it. This solves the problem of the seller not knowing whether the buyer has any intention to pay – the buyer has effectively already spent the money, and the seller can see this.
- The seller has only one way to actually receive the payment: he must convince the buyer to release it to him by providing the service or product. If the seller had no intention of providing, there would be no reason for him to even enter the contract in the first place.
If the seller provides the product or service, the buyer releases the payment. If not, the buyer burns it. The buyer could also choose to burn some portion and release the rest.”
A system like this does consider the possibility of a buyer simply burning their payment anyway, even after receiving quality service or goods from a seller. This would destroy the buyer’s reputation and is clearly an irrational, self-destructive move, but certainly not outside the realm of possibility.
There’s always room for contention: a buyer could release only 80 percent of a payment because they feel a service provided was lacking. The seller could feel slighted if they felt their work was quality and deserving of a 100 percent payout. According to the 2005 paper “Irrationality in Game Theory” by Yamin Htun, “laboratory experiments indicate that people often fail to conform to some of the basic assumptions of rational decision theory. Furthermore, experiments also indicate that the conclusions of rational analysis sometimes fail to conform to reality.” That means that no matter how well designed a system is, there will always be scammers and there will always be victims; this is simply because some people will just fail to behave rationally or as expected. Burnable payments aim to disincentivize scammers, while providing legitimate operators with a reliable way of incentivizing others to sell them products or services.
Brutsche previously conducted a small test of the BOP contract idea, putting Ether into several burnable payment contracts and requesting different services. Two of those contracts were fulfilled and payments were released. No one interacted with the other two contracts and Brutsche accepted the job offers himself to reclaim the Ether.
Brutsche has continued to refine his BOPs, adding an explicit recover function to the contract. Originally, if you put up Ether to burn but no one accepted your job offer, you’d have to accept your own offer to reclaim your Ether and avoid burning it for no reason. Now, a user can just call the recover function (as long as someone else hasn’t already accepted the BOP job). He’s also looking at the idea of the default releasing of payments via a timeout. This would add another layer of automation to the contract, but could potentially present a new attack vector to scammers. Brutsche is already planning his “next stunt,” which you can read more about on reddit.
There are clearly still some game-theoretical issues to be worked out but the idea is a solid one. Sure, a buyer could extort a seller by withholding a payment until certain additional (not previously agreed upon) requests were granted, but hopefully a reputation system deployed alongside BOPs could mitigate most forms of chicanery.