Atomic Swap Settlement Contract for Private Digital Assets
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Solution Overview
Problem
Existing digital payment schemes face challenges in facilitating fair bilateral exchanges of private digital assets protected by zero-knowledge cryptography, as smart contracts cannot unilaterally effect transfers, leading to settlement risk.
Innovation Solution
A distributed ledger network-based method for provably fair atomic swaps, utilizing a settlement contract that defines data structures for each party to store asset types and proofs, locks hash values, and verifies proofs to ensure secure and fair exchanges without exposing sensitive information.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Adaptability or versatility
If smart contracts are used as escrow agents for non-private ERC-20 assets, then fair bilateral exchanges can be easily orchestrated, but this approach fails for cryptographically private assets where contracts cannot participate
Solution Approach 1:
The patent introduces a trusted third party (TTP) as an intermediary that receives and verifies signed checks from both parties before releasing assets. The TTP acts as a mediator that can handle cryptographically private assets without requiring smart contract participation, thereby enabling fair exchanges for private assets while eliminating settlement risk through centralized verification and coordination
2Adaptability or versatility
If signed checks are publicly published before cashing for private assets, then exchanges can proceed without smart contracts, but both parties become subject to settlement risk
Solution Approach 1:
The patent implements preliminary action by requiring both parties to submit their signed checks to the trusted third party before any asset transfer occurs. The TTP verifies both checks and coordinates the exchange atomically, ensuring that neither party is exposed to settlement risk. This preliminary verification and coordination step prevents the settlement risk that would otherwise exist when checks are published before cashing
3Ease of operation
If Ethereum signatures are used for asset transfers, then unilateral transfers can be authorized, but this fails when assets require different authentication mechanisms
Solution Approach 1:
The patent extracts the authentication mechanism requirement from the asset transfer process itself. Instead of requiring Ethereum signatures or asset-specific authentication, the system uses a trusted third party that can verify and coordinate transfers for any authentication mechanism. The TTP takes out the need for mechanism-specific verification by providing a universal coordination layer that works with diverse authentication systems
Data Source
AI summary
Embodiments may include a two-round-trip protocol by which two parties can securely conduct an already-agreed-upon exchange of digital assets (i.e., in the provable absence of settlement risk). For example, in the first round of the protocol, each party may send to a specially designed “settlement contract” the “statement” corresponding to the party's portion of the proposed bilateral transaction (e.g., how much asset the party will transfer, and to whom), as well as a hash of the party's “proof”. Between rounds, each party checks that the other party's statement transfers to the party the agreed-upon amount. The settlement contract may then lock the proof hashes against future misuse, and in particular against use by unauthorized parties. In the second round, each party sends its proof to the settlement contract. The settlement contract then dispatches both statement-proof pairs and executes the bilateral exchange.