ERC-7573: Conditional-upon-Transfer-Decryption for Delivery-Versus-Payment

ERC-7573: Conditional-upon-Transfer-Decryption - A Proposal for a Lean and Functional Delivery versus Payment

Abstract

The interfaces model the functional transaction scheme to establish a secure delivery-versus-payment across two blockchains, where a) no intermediary is required and b) the operator of the payment chain/payment system has a small overhead and does not need to store state.
The main idea comes with two requirements: First, the payment chain operator hosts a stateless decryption service that allows decrypting messages with his secret key. Second, a “Payment Contract” is deployed on the payment chain that implements a function

function transferAndDecrypt(uint id, address from, address to, keyEncryptedSuccess, string keyEncryptedFailure) external;

that processes the (trigger-based) payment and emits the decrypted key depending on the success or failure of the transaction. The respective key can then trigger an associated transaction, e.g. claiming delivery by the buyer or re-claiming the locked asset by the seller.

Motivation

Within the domain of financial transactions and distributed ledger technology (DLT), the Hash-Linked Contract (HLC) concept has been recognized as valuable and has been thoroughly investigated.
The concept may help to solve the challenge of delivery-versus-payment (DvP), especially in cases where the asset chain and payment system (which may be a chain, too) are separated. The proposed solutions are based on an API-based interaction mechanism which bridges the communication between a so-called Asset Chain and a corresponding Payment System or require complex and problematic time-locks (\cite{BancaItalia}). We believe that an even more lightweight interaction across both systems is possible, especially when the payment system is also based on a DLT infrastructure.

Specificaiton

Methods

Smart Contract on the Asset Chain

interface IDeliveryWithKey {
    event AssetTransferIncepted(address initiator, uint id);
    event AssetTransferConfirmed(address confirmer, uint id);
    event AssetClaimed(uint id, string key);
    event AssetReclaimed(uint id, string key);

    function inceptTransfer(uint id, int amount, address from, string keyEncryptedSeller) external;
    function confirmTransfer(uint id, int amount, address to, string keyEncryptedBuyer) external;
    function transferWithKey(uint id, string key) external;
}

Smart Contract on the Payment Chain

interface IPaymentAndDecrypt {
    event PaymentTransferIncepted(address initiator, uint id, int amount);
    event TransferKeyRequested(uint id, string encryptedKey);
    event TransferKeyReleased(uint id, bool success, string key);

    function inceptTransfer(uint id, int amount, address from, string keyEncryptedSuccess, string keyEncryptedFailure) external;
    function transferAndDecrypt(uint id, address from, address to, keyEncryptedSuccess, string keyEncryptedFailure) external;
    function cancelAndDecrypt(uint id, address from, address to, keyEncryptedSuccess, string keyEncryptedFailure) external;
}

Rationale

The rationale is described in the following sequence diagram.

Sequence diagram of delivery versus payment

Original Concept

A Proposal for a Lean and Functional Delivery versus Payment across two Blockchains

1 Like

If it indeed manages to address the challenge of delivery-versus-payment, particularly in situations where the asset chain and payment system operate as separate entities, then this would be a truly significant proposal.

2 Likes

@pekola I have the following questions on the current interface specification:

  • Should the parameter id be a string rather than an uint to allow for more flexible usage? Id could then be a json specifiying which decryption orcale to use, etc.
  • Some function have redundant specification of “to/from” as these fields have already been specified when initiating with id. Should we require to have these redundant parameters specified?

Hello @cfries - I would rather suggest a first weak linkage to ERC-6123.
We could extend the IDeliveryWithKey by the functions inceptTrade, cofirmTrade in which the trading parties agree on the trade terms. Based on the transactionSpecs which are agreed a hash gets generated. This will be used in the function pattern vor DvP. Therefore “id” is fine (transactionSpecs = tradedata, paymentamount, etc. are agreed before).

So id is generated by another function call (that is not part of the interface)? Otherwise they have to ensure that they do not use an existing id. Is it is required that id is identical on both chains, right?

Yes - I would prefer: Trading Parties agree on terms (incept/confirm), for those terms a unique id is generated which gets processed via DvP-Pattern. Asset Contract keeps track on the states within Dvp-Process. Gonna be a nice design.

OK. But the point of making id a string instead of an int maybe remains. I believe an int is too narrow. The id could by a UUID.

Really interesting proposal :slight_smile: The idea that both buyer and seller don’t need to store the secret (as compared to a HTLC protocol for example) seems to be a valuable feature.

I’ve got some questions:

I was wondering if all calls are really necessary. Given that buyer and seller agree on a trade by exchanging E(B) and E(S). Wouldn’t it be enough for the seller to upload E(B) and E(S) to the asset contract (and locking the asset tokens) and for the buyer to store E(B) and E(S) to the payment contract once the buyer has observed that the tokens have been locked in the asset contract? If the buyer fails to call the payment contract with E(B) and E(S), the payment contract could allow to cancel the trade if and only if the combination of E(B) and E(S) is not present.

The functions transferAndDecrypt and cancelAndDecrypt require E(B) and E(S) as parameters. However, they should already be stored inside the smart contract using the ID as a reference. What’s the reason for providing them again? The diagram shows that to is also needed. But that also could be referenced using the ID. Same applies to from and to as mentioned in the interface.

1 Like

I think it could be as easy as the following:

  1. Buyer creates E(S) and seller creates E(B) after agreeing on a trade and they exchange the encrypted documents
  2. Buyer calls inceptTransfer on the payment contract with E(S) and E(B)
  3. Seller observes that the transfer on the payment contract has been incepted correctly and calls inceptTransfer on the asset contract also using E(B) and E(S)
  4. Success case: Buyer observes that the transfer on the asset contract has been incepted correctly and calls transferAndDecrypt on the payment contract. Failure case: If the buyer fails to call transferAndDecrypt on the payment contract, the seller can call cancelAndDecrypt on the payment contract.
  5. Upon the revealing of S or B by the payment operator, buyer or seller call transferWithKey on the asset contract.

Upsides:

  • This would reduce smart contract calls and thus gas costs for the participants
  • I think it’s easier to understand because the buyer who holds cash on the payment chain mainly operates the payment contract and the seller who holds the asset on the asset chain mainly operates the asset contract

Am I missing something?

1 Like

I like this proposal too. It is useful for the cases where no entity with trusted entity is in place to manage the trigger and cancellation keys off-chain. In the case of Bank of Italy implementation in the context of ECB exploratory work, I would argue that if you trust Eurosystem to manage the RTGS accounts, then you can also put the trust into managing the trigger and cancellation keys. However, not in all situations you can have someone like a central bank offering the service and in this cases I believe this proposal might be useful.

At the first glance, as a fan of symmetry, I am asking myself why you introduced two different interfaces? Isn’t it possible to unify in the sense that it doesn’t make a difference which side initiates the transfer? Also with payments, in the and it is asset vs asset, so why differentiation between asset chain and payment chain?

Moreover, could we avoid encrypt/decrypt and work with hashes only? Could be more resource-efficient?

@ivica I agree, it doesn’t matter if the centrally managed side contains the cash asset or some other asset - comparable to the HTLC protocol.
However, from my understanding (as with HTLC) the order of transactions matters. Also, there is really just a single contract “that matters”. That is the hash link contract on the asset chain. The payment contract is just an interoperability mechanism between the payment operator and the participants of the trade used for retrieving the decrypted secrets.

The encryption of the pre image is necessary so that it remains private to the respective other party, if we assume that the we use a public ledger for the payment contract.

One can replace the on-chain encrypted key with a hash and avoid on-chain encryption. This reduces computational complexity on chain. It is described in our paper: You replace the encrypted key E(K) with a hash H(K) of the decrypted key K. However, this requires that the decryption-oracle provides an additional stateless function that maps E(K) to H(K) without exposing K. The decryption oracle can do this via E(K) → K → H(K). This function could be provided off-chain and it is still stateless.

  • Advantage: just a hashing on-chain.
  • Disadvantage: additional (but still stateless) API required.
1 Like

@cfries what’s also not clear to me yet: are Asset Contract and Payment Contract on the same DLT or on two different DLTs? As far as I understand the seq. diagram, the Payment Operator would need to call the smart contract (blockchain transaction), right?

If there is a separate ledger that Payment Operator is providing, then compared to BdI HLC solution it would be shifting the key storage to DLT instead of having it in the Payment System (so basically the complexity is not removed, but just shifted). If it would be on the same ledger, then the PaymentOperator would have to go into dependency with potentially many market DLTs, which introduces additional integration efforts (additional complexity).