Lex Cryptographia, Bitcoin, and the Revolution of Open Bazaar

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Open Bazaar – An Open Source, Decentralized Market

Open Bazaar is a Dark Market spin-off that is supported by the official Dark Market team, going so far as to allow an Open Bazaar section on their online forums. Open Bazaar has the capacity to utilize Bitcoin and cryptography to become a competitor to the likes of eBay, by enabling pure peer-to-peer transactions without a middle man manipulating the entire scheme for their benefit. This notion immediately flows into the concept of the online auction house.

Ricardian Contracts, a system of exchanging agreed upon amounts of wealth, though not the wealth itself, would be used to facilitate such a progressive system. Its association with Dark Market does mean that Open Bazaar is subject to much of the aura of taboo surrounding such online marketplaces. Marketplaces such as the Silk Road have become infamous for the deepest depravities and oddities available on the internet, even going as far as to taint the entire image of Bitcoin in the eyes of many of the uninitiated.

Ricardian Contracts’ Gamechanging Potential

Originally created by Ian Grigg and Gary Howland, as an addition to the Ricardo payment model, the Ricardian Contract is a means to translate capital of any sort into a series of agreements, or trade-able contracts. A transfer system moves capital from one account to another, this system must identify the type of capital being exchanged. The potential for thousands of kinds of currency trading, such as couches, Bitcoin, Yen, etc., causes a severe limitation in the online  marketplace.

This begs the question, when a currency is exchanged online, what does the recipient actually receive?

Few transfer systems answer this question fully. The currency being exchanged is defined in terms of fiat currency, usually, and any other problematic elements in terms of exchange are written off in a user agreement. PayPal, for example, requires the United States Dollar to define the worth of it online exchanges. Whereas those trading tungsten online are more dependent on user agreements, as it is not a form of capital as frequently traded or regulated. When bartering, be it Bitcoin or other items, using an external reference is clumsy. This can lead to exchanges being unfair or insecure. With the American dollar, there are multiple forms, whether online, physical dollars, or a dollar being transferred at a later date. These all have different values due to the time it takes to transfer them. Gold is even more fickle, as different exchanges can produce significant alterations in final amounts of seemingly definite wealth. Converting on an online platform between these different forms of capitals, potentially numbering in the thousands, becomes a logistical nightmare.

There is an alternative, however. Instead of having a user agreement, and then a currency, using an online system, the user agreement can BE the currency. By making the contract a universal currency on the platform that has a fixed amount in relation to every other capital, this allows every transaction to be regulated, understood, and made much more fair, by standardizing it for everyone. The confusion in terms of what is being traded is thereby diminished greatly. Bitcoin is an incredible avenue for this system, though every form of capital can benefit from such a system.

How Will Open Bazaar Work?

The seller would opt for an auction style contract. This type of contract would require the product  details, and auction details, of the capital in question to be entered into required sections within a file. The required fields would include, item name, description, minimum sell price, buy now price, expiration date, and a blank field for bidders to enter into the file and add their bidding amount into the contract. Some of these requirements would be optional, such as the buy it now price. As people bid on one item, the contract is updated with that formal agreement, and once the bid ends, it is digitally signed by a third party arbitrator. This is similar to verifying Bitcoin transactions through mining. Once this is complete, a multisignature Bitcoin address for the contract is created for the winning buyer. This process is utterly innovative and could potentially decimate competing online marketplaces.

This project is being done primarily in Python. The architecture of the P2P network means the seller may not constantly be available during her auction contract time limit. Therefore, the online version of the contract may not reflect the latest bid. Therefore, a negotiator node would be set up so that the contract would auto update in the case of a bid. The negotiator node would create their own version of the contract, sign bid contracts, update the changing bid price, and finalize the final bid contract to the seller for the digital signature once the term expires, it would then create the address key. If the seller signs the contract it is sent to a third party arbiter, similar to the concept of a miner for Bitcoin, for the  creation of the multisignature bitcoin address for the winning bidder, so that he can forward funds there. The negotiator node is paid a fee by the seller,  through another multisignature address hosted by another arbitrator. The buyer has control, and if they dislike how the contract was negotiated by the negotiator node, they can refuse to sign the contract and voice a dispute for a refund from the multisignature address.

Open Bazaar Tent

Tentative Nature of the Open Bazaar Structure

The concepts involved with OpenBazaar are not final. Basic infrastructure and creating the fundamental system takes priority over something such as the auction house, the transaction system must first be finalized. However, the auction house is an extremely likely possibility already being considered at an extremely technical level. Other ingenious ideas have been proposed, however, incorporating them proves to be the biggest challenge.

Development of the system has proven to be a much more difficult reality than formulating concepts that could potentially innovate industries. Application is harder than planning. The proposal for OpenBazaar describes the specifics of the Ricardian Contract and the auction house in detail, however, this would not be a requirement for users, so as to lower the bar of entry. The complexity of the system would be unneeded information for many users, yet a strong advocate for those that choose to research it.

Open Bazaar Could Create Transaction Insurance Contracts

The seller can feel confident that the funds for the contracted item actually exist when the buyer has forwarded the agreed amount of bitcoins to the multisignature Bitcoin address. The seller would then ship the item to the buyers’ address, or complete the exchange in however method. The buyer can also be refunded from the multisignature address if the arbiter is satisfied with his proof that the contracted item did not arrive, or another serious irregularity occurred.

A surety bond is required by the arbiter node by both the seller and the buyer. The surety bond is a significant amount of Bitcoin sent from both the buyer and seller. It is held in a multisignature bitcoin address that will refund the Bitcoin when the contracted transaction is complete. Were a dispute to arise and one party is proven to be intentionally at fault, the surety bond funds are given to the other party as compensation. An accidental fault as opposed to a malicious fault includes shipping companies damaging goods as opposed to intentionally sending a damaged good. The surety bond value is alterable and the entire process is optional. Though, through web reputation, the surety bond system would be less and less important for decorated individuals on the market.

To verify arbitrators, Open Bazaar will have a trusted group of individuals, and this will expand to others based on reputation generated by user ratings. OpenBazaar does not force arbitrators, and early adopters would furnish the first extremely trust worthy group of individuals. Arbitrators are chosen by the buyer and seller based on rating.

 A Potential Market Revoluton in the Making

Ricardian contracts using Bitcoin multisignature addresses have the potential to support an entire platform for transactions, including an auction house that would rival the likes of eBay. The means by which this would occur are still being created, however, a third party negotiator would, in theory, be a sufficient moderator for the transactions. The team at OpenBazaar needs more developers, and whilst Dark Market has potential, the scale of the project was much larger than the scale of the teams capacity. The OpenBazaar team is asking for assistance and is being very open with their code so that contributions can be made, as well as asking for Bitcoin donations.

The ramifications this market could have through having proven identities, a rating system, a third party node, and usage through Bitcoin addresses would remove any serious potential for scamming. This would create a universal international market through Bitcoin, whilst also removing much of the fees involved with eBay, Amazon, or other online retailers. A cheaper, faster, safer, all inclusive, and potentially extra-legal, marketplace.

Bitcoin has opened the flood gates to a internet culture with more freedom than has even been possible, crossing all boundaries between country and different instruments of currency. However, even more interesting, is the capacity that a platform like Open Bazaar has to create arbitrary legal systems. Since contracts can represent any kind of exchange, the potential that such a system could be used to utilize any formal or informal series of laws is incredibly fascinating. Not only would the marketplace be free from nation state regulations, but entire communities sharing certain common beliefs or desiring certain protections would have avenues to establish those practically without a pre-existing legislative body to rule over them. They could compel themselves to abide by a law, or avoid another, without having to engage politically. This voluntary form of contract arbitration is perhaps the most democratic possibility on an individual level within recent history.

Lex Cryptographia – An Innovative Idea, but Not Necessarily a New One

To understand the roots this system has grown from, one must go back hundreds of years to one of the earliest breakthroughs in decentralized trading and contract enforcement, Lex Mercatoria.

Lex Mercatoria

History of Lex Mercatoria

Lex mercatoria was originally a fluid system established by merchants to regulate the marketplace. Despite local variation, it had many staple characteristics that were agreed upon in many locations across Europe. This system rose from the need for a quick, effective, legislative force that was universal. As opposed to being subjected to the changing laws of different lands, merchants could follow a single code tailored to their needs wherever they went. This system bolstered trade in the regions it existed.  The medieval Lex Mercatoria did not originate from any singular legislator, instead consisting of a system of principles that could be adapted or re-adapted, and grew out of the desire of the users. Though there is no definitive understanding of the specifics of ancient Lex Mercatoria, as to whether there was a rigid uniformity or impromptu rulings, whether it applied to all merchants or was manipulated by the more successful, the influence it has had on the global marketplace is clearly evident. This concept could also be reestablished outside of the economic sphere.

Trans-lex

Modern Lex Mercatoria

Though revivalists in the sixties attempted to recreate some form of Lex Mercatoria, widespread adoption has been nonexistent. In order for this system to work, with the intended benefit being the arbitration of rules being left to the user, going through a pre-existing court system or evading economic laws on the ground is a difficulty. The Trans-Lex Principles are an extremely robust series of rules drawn from international law, domestic situations, court cases, and contracts that have been compiled to give those within a Lex Mercatoria system the capacity to refer to any ruling and arbitrate contracts. Each text has a sort of exegesis that highlights its’ practical application, and its’ inter-relation with other TransLex principles. This allows a new Lex Mercatoria to develop. However, this does not solve the issue of the platform by which such a marketplace would exist.

Their website states,

The TransLex-Principles may be used for many purposes, for example as a means:

  1. to determine the applicable rules in a dispute if the parties have chosen “transnational commercial law”, “general principles of law”, “the lex mercatoria” or the like;

  2. to determine the applicable law, if, absent a choice of law by the parties, the arbitrators decide to apply this concept to the dispute before them;

  3. to allow for an autonomous interpretation of and for the filling of internal gaps in international conventions and other uniform law instruments16;

  4. to allow for the “internationally useful” construction of domestic law in international disputes;

  5. to ascertain the disputed meaning of key legal terms of transnational commerce, e.g. “force majeure”, “hardship”, “best efforts”, “time is of the essence”, “FOB”, “CIF” etc.;

  6. to supplement or correct a future European Civil Code in international commercial disputes17;

  7. to provide legal know how about modern commercial law to developing and transition countries;

  8. to provide information about transnational law to other sciences (politics, economics, sociology) which are exploring the clash between the territorial limitations of the law and the transnationalisation of international commerce and trade in an era of globalization.

TransLex intends to continuously update with more rulings and their explanations along with relations to other rulings without pause, so as to create a library capable of allowing any form of nuanced arbitration to develop in a Lex Mercatoria market.

Lex Cryptographia Scales

Lex Cryptographia

This revolution is also applicable to Bitcoin security and cryptography through Lex Cryptographia. A malicious miner might mine a block containing a double spend only to then pay the merchant, and broadcast the block. A malicious miner might purchase Bitcoin with a modified wallet that submits a double spend, they would then mine as much as they had the capacity to before returning the capital. A solution to this is to have honest miners build on such blocks, yet this has the potential for several flaws. Such scams are difficult to locate, automatic notification of scams would make many innocent miners blocks look like scam attempts, and miners who decide not to work on a block may potentially lose their efforts in terms of mining.

Several alterations could potentially solve these issues. By having miners submit double spends of themselves to the service by using an external software, they could detect scam blocks if they see their own double spend. Scam blocks would be redistributed across everyone involved in a chain, thus not wasting the work of the scammer whilst reimbursing other miners and preserving their efforts. This system is functional as long as the majority of the miners are honest. A voting mechanism on choosing blocks would be applied, but not to arbitrary transactions. This way, individuals’ bitcoins would not be stolen, but a miner can refuse to mine a suspicious block. This gives the miner total control over how specifically they make their wealth and can foster a sort of reputation system.

A mining pool could offer this as an optional service that is paid for. They would create an application wherein merchants could submit transactions, and warnings would pop up if the same double signature were to pop up. It could also specify how much mining has been done on a certain block by a scammer. If miners were to offer this, a merchant could choose how much douoble spend protection he’d like that fits his desired income. However, if individuals do not want to operate through mining pools, a large interface spanning all miners could be established. Similar to Lex Mercatoria, this would allow for a fluid marketplace in which one agrees to the set double signature rule, or can choose to ignore it.

Arbitrators would be used to handle all disputes and contract enforcement, and, in essence, provide a voluntary court system to the community. While this isn’t an exact implementation of Lex Cryptographia, and it does not seem that Open Bazaar is currently planning to utilize all of the aspects of the idea, it is possible that the developers are envisioning are expanding upon their current plans, or using this system to provide a ‘proof of concept’ for future systems.

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3 Comments

  1. First ebay says they are in favor of digital currency and now openbazaar? Good things are coming.

  2. mybighairycoins on

    Holy cow, slow down. Not ready to learn so much this early.

    But seriously, nicely done. Well-approached and thought-out article.