Unobtrusively Anonymizing the U.S. Postal Service With Smart Contracts

[Daniel]

After Greg Maxwell and others started discussing this in IRC shortly after I posted it, for whatever reason it was censored off of Bitcointalk, so I'm going to post here.

Please recognize that despite the direct tone in which I wrote this, it is merely a thought experiment and an example to demonstrate an algorithm I have been thinking about (DNIS) since earlier this year. I am not going to build this application. I even went as far as to have my attorney review this draft before I posted it on Bitcointalk initially. However, I do think the underlying algorithm (DNIS) could be important and have many other real world applications, if I'm right. I also believe this board is most appropriate for the algorithm, if you understand it, as I may be proposing a new way to think about how we utilize smart contracts (to orchestrate real world tasks between three or more random peers in a peer-to-peer network without trust, rating systems, and custodial third parties / oracles): "Discuss everything technical regarding the Bitcoin protocol"

I would very much appreciate it if any system engineers could respond with criticisms or find any flaws in the underlying algorithm, or the first application I proposed (see title) for fun. I predict three other applications which I'll be open to discussing if no major flaws are found first.

For your reassurance, my name is Daniel Pusateri. I am a cofounder of LZF.com, which was the first U.S.-based Bitcoin exchange to legally operate in 49 states.

Thank you.

I've been thinking about it for months, and I don't know how to write this out properly, so I'm just going to give an example and hopefully people will understand it.

A little background... I have been fascinated with the concept of truly decentralized anonymous online marketplaces, but there are inherent flaws in all of the ones I've examined so far which imposes considerable risk to both the vendors and consumers participating in them.

I think most of all of the problems can be related to a few simple things:

1) Imperfect privacy
2) Collusion
3) Sybil attacks

At first I started looking for obvious solutions... Notably:

1) Use currencies with better anonymity such as ZeroCash
2-3) Use better trust systems such as EigenTrust

Now, I don't think pursuing these solutions is a bad idea. However, they're far from perfect solutions when you start to examine how all of this fits together in practice from a consumer and vendor's perspective.

For example, you might imagine that in a decentralized marketplace the purchasing process looks something like this:

1) A vendors puts up a bond
2) A vendor places an item for sale
3) A consumer sends currency to the vendor's currency account
4) The same consumer asymmetrically encrypts their shipping address and sends it to the vendor
5) The vendor decrypts the consumer's message into plaintext and then ships a package to the consumer

In this scenario, all of the privacy of the software falls apart at step #4 and after. This is because the consumer must divulge identifying information to the vendor - their location, and to avoid suspicion from the government (i.e., USPS), presumably they would be sharing their name with the vendor as well.

These aren't minor leaks in privacy. Assuming the vendor takes reasonable precautions before sending the mail (such as sending from random places every time), the consumer is still at considerable risk of being identified by both the vendor and the government (i.e., USPS).

Good rating systems will reduce the likelihood of a vendor abusing this information, but that still leaves the government as a privacy leak. Furthermore, since many vendors are likely to be using the government for shipping, or even if they used private companies such as FedEx or UPS, then this system is gradually losing centralization and the privacy leak is exponentially greater. At least in the case of vendors, the privacy leak is likely to be stopped early due to the reliability of rating systems.

So let's examine the larger problem - the government (USPS). If you start to look at the USPS as a system, as you would software, you'll realize that it functions a lot like the internet. A package will relay between several different locations before it reaches a final destination. The USPS can easily determine where it originated (most likely a relatively random place, if the vendor took decent precautions) and where the final destination is (the consumer).

But what if the origin and destination of the shipment were bogus? What if it were possible to randomly send a package to a stranger, and know that same stranger will unknowingly send it to another stranger who unknowingly sends it to another, who eventually unknowingly sends it to the real recipient?

It's actually pretty easy to come up with a way to do this in a p2p network. However, it gets tricky when you take into account the individual motives, incentives, and decisions of the random participants in the transaction. You can't trust them. Thus, the trick was designing a properly incentivized, collusion resistant, and scalable method for anonymously and reliably orchestrating real world tasks between three or more random peers in a peer-to-peer network without trust, rating systems, and custodial third parties.

Now when I thought of this, I was initially only intending on solving this one problem (anonymizing the U.S. Postal Service) -- but as it turns out, I quickly realized that this algorithm is probably much farther reaching than just this. Thus, the appropriate name for it is...The Death Note Incentive System.

Here is how it would work:

A sender would map out an anonymous route, comprised of "nodes". Nodes are random, incentivized, voluntary participants (peers) in this p2p network who know nothing about the sender, the real recipient, nor any other nodes in the transit.

A couple of prerequisites:
1) The route has to be orchestrated in reverse order for this system to work.
2) There must be at least one node randomly selected who is not the real recipient, but there is no maximum limit.
3) Although this algorithm is going to be explained in terms of how it is unobtrusively applied to the U.S. Postal Service, please contemplate that you are orchestrating real world instructions between random peers in a network yet it requires no trust.

The first step is to sign a digital smart contract with the destination node (recipient). In this contract, both you (the sender) and the recipient would each put up a bond totaling the value of the package. For this same contract, you (the sender) would generate a random private/public key pair. The public key would be a part of the contract and signify how the funds can be released (only by publishing a transaction with a signature verifiable by the included public key).

The recipient would also generate a random private/public key pair. The public key would not be included in this contract. Instead, it would be encrypted and sent to the sender.**

Now you both have a bond equal to the package value locked in a smart contract. The sender controls the private key to release the bonds. The recipient holds a private key as well and sends the public key associated with it to the sender.

Now the sender would choose a random peer (note: this step can repeated as many times as desired, but at least one selection required). The sender would propose entering into a smart contract with the peer that works like this:

The peer would put up a bond for the value of the package (the peer does not know about the package, only that he/she must put up a bond of X value -- the value must be equivalent to the economic worth of the package). The sender would also put up a bond for the value of the package PLUS a commission value (incentive) that is redeemable to the peer when the contract bonds are released. This commission should be greater than the postage costs the peer will incur when delivering to the recipient.

The public key that the recipient sent to the sender after signing the previous contract will be referenced in this new contract. A signature from the private key associated with that public key (which the recipient controls) will release the bond.

Over a secure channel, the sender tells the peer the recipient's address and instruct the peer to deliver the package to that address after the peer receives the package.

The sender now sends the package to the peer. The peer receives the package. The peer sends it to the recipient. The recipient confirms the package has been delivered and signs a transaction with the private key he/she controls to release the bonds associated with the peer's and sender's contract. The peer receives commission for his/her participation and knows nothing about the sender and recipient. The recipient may not be the real recipient, and could just be another peer in the network who will repeat the same instructions to another peer or real recipient.

After the final recipient confirms the package was delivered, he/she informs the sender over a secure channel. The sender, using the private key known only to him associated with the sender-recipient contract, publishes a transaction to release the bonds the sender and recipient have put up.

With the conclusion of this transaction, the sender has anonymously orchestrated real world actions between random peers in a network with no trust. In a way where no peer has any advantage to collude with any other peer (it would cost them their bonds with nothing to gain) and the sender has no incentive to scam the recipient or any other node, as the sender has one bond of the package value associated with every peer in the chain.

Sybil attacks are obsoleted as no peer has a reputation to hinder, only a bond to protect. Execution haste and reliability among peers is incentivized so that the peers can acquire their bonds ASAP and not lose them.

Please review this system and let me know your thoughts.

Below are two graphs. The first shows the simplest chain and the second shows how you would start to scale to larger chains.



Thank you.

[arnoudk]

Hi Daniel. I'm trying to understand your process... can you clarify some steps?

It's actually pretty easy to come up with a way to do this in a p2p network. However, it gets tricky when you take into account the individual motives, incentives, and decisions of the random participants in the transaction. You can't trust them. Thus, the trick was designing a properly incentivized, collusion resistant, and scalable method for anonymously and reliably orchestrating real world tasks between three or more random peers in a peer-to-peer network without trust, rating systems, and custodial third parties.

Since you cannot trust any of the peers in the system, and you cannot trust the sender of the item to ship the real thing, I can see a few risks that would have to be addressed. For example, the sender not sending the goods, the sender sending a brick, a node stealing the goods, a node stealing the goods and replacing it with a brick, a bad actor opening the package and inserting a GPS tracking device and relaying. I'm sure there are others, but if this is what comes to mind immediately.

A sender would map out an anonymous route, comprised of "nodes".

Is the sender aware of the physical address of each node in the route? Or is the next node's address only decryptable by the one before it? A node would need to be 'clean' (it can build no reputation) for each transaction, otherwise a map of nodes and physical addresses could be made. Presumably, there would be fewer nodes than packages being transmitted, so a node that receives hundreds of packages would likely be a node, and a "node" that only receives one would be the end point. If nodes forward to physical addresses frequently, he could write down the address of this node. I guess I am saying: this system would work best if everyone who sends and/or receives packages takes part in this system - for some time before and after receiving a package. It cannot really be a one-time deal.

Since you are protecting against government spying, you would need to protect against a government agent setting up tens or hundreds of relay nodes. They would know about each other, so would only have to investigate unknown addresses. You would also need to protect against tagging/tracing the package - through RFID labels, GPS loggers, etc, that could be inserted into or onto the package. Now, it is not 'multiple packages that get sent one time', but 'one package that gets sent multiple times'. I'm not sure how you would protect against that. You'd not want every node to open the package, examine it, put it in the microwave for 10 seconds to destroy electronics, repackaging it in different material and mailing it... but besides that I am not sure what would suffice. This approach is providing an entrance point for the entity you are trying to exclude.

Not to mention that, in the event that a government controlled node is the first node, the USPS database would show where it was mailed from. This may not lead to the sender (if he was careful), but it could be combined with other information sources. At the very least, it could get examined for fingerprints (or would you mail items with gloves? The USPS would find that strange in summer!).

The first step is to sign a digital smart contract with the destination node (recipient). In this contract, both you (the sender) and the recipient would each put up a bond totaling the value of the package. For this same contract, you (the sender) would generate a random private/public key pair. The public key would be a part of the contract and signify how the funds can be released (only by publishing a transaction with a signature verifiable by the included public key).

The recipient would also generate a random private/public key pair. The public key would not be included in this contract. Instead, it would be encrypted and sent to the sender.**

Now you both have a bond equal to the package value locked in a smart contract. The sender controls the private key to release the bonds. The recipient holds a private key as well and sends the public key associated with it to the sender.

Are you talking about a 2/2 multisig contract between sender and receiver? Let's assume the value of the goods are 1 BTC, so the sender and the receiver each put 1 BTC in this 2/2 multisig address (2 BTC total). The exposure for the sender is 2 BTC (1 BTC for the goods, and 1 BTC for the bond), and the exposure for the receiver is 1 BTC (for the bond).

I'm not sure what you mean with "The public key would not be included in this contract" as the multisig address would require the public key for both parties for it to be created. Are you referring to a 2/2 multisig address, where a transaction is signed (outputs specified) by one of the parties but not both? Or are we talking about different things here?

Now the sender would choose a random peer (note: this step can repeated as many times as desired, but at least one selection required). The sender would propose entering into a smart contract with the peer that works like this:

The peer would put up a bond for the value of the package (the peer does not know about the package, only that he/she must put up a bond of X value -- the value must be equivalent to the economic worth of the package). The sender would also put up a bond for the value of the package PLUS a commission value (incentive) that is redeemable to the peer when the contract bonds are released. This commission should be greater than the postage costs the peer will incur when delivering to the recipient.

The public key that the recipient sent to the sender after signing the previous contract will be referenced in this new contract. A signature from the private key associated with that public key (which the recipient controls) will release the bond.

If the node puts 1 BTC (in our example) up as a bond - what guarantee does he have that he is not sent a brick? How can he force the release of funds after he has sent it? Is he at risk, if he sends it but a node somewhere down in the chain does not send it? What happens when the package is authentically lost?

Over a secure channel, the sender tells the peer the recipient's address and instruct the peer to deliver the package to that address after the peer receives the package.

The sender must know the address of each node. If the government agency is the sender, they would be able to build a map of the system. If they keep doing it, at some point they would have found most of the nodes that relay. After that, they can act as a relay and find the end points.

After the final recipient confirms the package was delivered, he/she informs the sender over a secure channel. The sender, using the private key known only to him associated with the sender-recipient contract, publishes a transaction to release the bonds the sender and recipient have put up.

I'm still a bit fogged as to what kind of transaction this is.

Another concern I would have, if I was a sender, I would have to ship the item (1 BTC invested), pay the bond (another 1 BTC invested), assuming 5 nodes: pay 5x the bond per node (5 BTC invested): so I am risking 7 BTC. If a customer wanted to destroy me, he would order things with different aliases (or hacked accounts), pay 1 BTC per transaction himself (which he would lose), and I would lose 7 BTC as a sender, and nodes would be collateral and lose 5 BTC in total (and demotivate them). Quite a multiplier.

So I am sure my understanding of your proposal is not correct at the moment. Can you point me to the errors in my reasoning, and explain the transactions in some more detail? Thank you.

[gavinandresen]

It's not clear to me what problem you're trying to solve, or what attack you're trying to prevent.

First class mail inside the US is protected, unless the postal service has a search warrant:
https://postalinspectors.uspis.gov/contactUs/faq.aspx

... so why doesn't the sender just send directly via first class mail? The fewer people who know about the transaction, the more privacy. What stops one of the intermediate senders from opening up every package and then creating a nice little database of who received, what, when? (before packing it back up and sending it along, so they get their commission/deposit back)

If there is a search warrant or the package comes from overseas, and the package contains something illegal, I don't think law enforcement will care much if the intermediate sender/receiver says "I had no idea what was in it, I was just going to pass it along." I am not a lawyer, but either "conspirator" or "accessory to a crime" might stick.

Delivery by private drone to anonymous GPS coordinates is just about the only anonymous physical delivery system I can think of that would have a chance of working. And even that is easily defeated by a little bit of physical surveillance at the drop site. Maybe the drop site could be off the coast, where your private submarine is waiting to take delivery and then skeedaddle....

[benjyz]

Interesting, but I think such a project will be more effective if it leverages existing reputation systems and legal structures. Look at the benefits of Uber and AirBnb, and how they achieve impact. Anything that challenges laws in a subversive manner is going to face the nation states power. What makes much more sense in my opinion is to thing about how supply chains could be improved by interfacing with what exists, or focus on cross-border trade and transactions. These kinds of things are very general problems to be solved. Most likely there will be some interface with existing laws (the SC will be localized in some way).

[Daniel]

Thanks for the responses.

Before I start addressing the different points brought up, I'd like to clarify something I was hinting at in the original post: The important algorithm is the Death Note Incentive System I described. The Anonymizing of the U.S.P.S. is just a high level application of this algorithm. I found it easier to describe the algorithm via an example, and I'm hoping people will pick it up indirectly.

It's important to realize that this (DNIS) is based on game theory in economics. Which basically means that it's designed in such a way that each person's individual greedy/selfish/non-altruistic motives align perfectly with the best possible outcome for all parties collectively involved in the system. If you imagine yourself to be any party involved in the system, at any given time within the execution of the system, you have one possible rational decision you can make - complete your task. If no flaws are found in this lower level system (see the graphs), then this is what is important and I'll start describing applications other than the U.S.P.S.

Since you cannot trust any of the peers in the system, and you cannot trust the sender of the item to ship the real thing, I can see a few risks that would have to be addressed. For example, the sender not sending the goods, the sender sending a brick, a node stealing the goods, a node stealing the goods and replacing it with a brick, a bad actor opening the package and inserting a GPS tracking device and relaying. I'm sure there are others, but if this is what comes to mind immediately.

The point of the system is that you don't have to trust them. It comes down to game theory. If the incentives are aligned perfectly, there is only one rational decision each participant in the chain can make. Thus, it requires no trust in them, but rather trust in the logic of the system.

In other words, the underlying algorithm I'm proposing (Death Note Incentive System) is a way for you to program people's incentives. That's a highly counterintuitive concept.

Is the sender aware of the physical address of each node in the route? Or is the next node's address only decryptable by the one before it? A node would need to be 'clean' (it can build no reputation) for each transaction, otherwise a map of nodes and physical addresses could be made. Presumably, there would be fewer nodes than packages being transmitted, so a node that receives hundreds of packages would likely be a node, and a "node" that only receives one would be the end point. If nodes forward to physical addresses frequently, he could write down the address of this node. I guess I am saying: this system would work best if everyone who sends and/or receives packages takes part in this system - for some time before and after receiving a package. It cannot really be a one-time deal.

Whoever mapped out the route would be aware of each nodes address. The sender or recipient can create a route, or they both can. In fact, it may be more secure if both the recipient and sender created a one-hop version of this system. In this case, the sender would send to a peer he/she randomly selected, who would send to a peer that the recipient randomly selected, who would send to the recipient.

This system implies that there would be no reputation systems.

Since you are protecting against government spying, you would need to protect against a government agent setting up tens or hundreds of relay nodes. They would know about each other, so would only have to investigate unknown addresses. You would also need to protect against tagging/tracing the package - through RFID labels, GPS loggers, etc, that could be inserted into or onto the package. Now, it is not 'multiple packages that get sent one time', but 'one package that gets sent multiple times'. I'm not sure how you would protect against that. You'd not want every node to open the package, examine it, put it in the microwave for 10 seconds to destroy electronics, repackaging it in different material and mailing it... but besides that I am not sure what would suffice. This approach is providing an entrance point for the entity you are trying to exclude.

You can span the nodes across various jurisdictions and use various shipping companies to reduce the feasibility of this attack.

As for RFID and GPS loggers - I imagine the packages essentially being an enclosed package within a package. So each time it would hit a node, the node would open it and repackage it without actually seeing the real contents (there's no incentive to as it would just put you at risk). At this time, they could wrap it in copper mesh if they were paranoid about tracking. That would limit GPS tracking to at most one hop.

Not to mention that, in the event that a government controlled node is the first node, the USPS database would show where it was mailed from. This may not lead to the sender (if he was careful), but it could be combined with other information sources. At the very least, it could get examined for fingerprints (or would you mail items with gloves? The USPS would find that strange in summer!).

I imagine the sender would still want to send from a random location. In the market places I've examined that exist today, this is how it is often executed. The recipients are more at risk than the senders.

Are you talking about a 2/2 multisig contract between sender and receiver? Let's assume the value of the goods are 1 BTC, so the sender and the receiver each put 1 BTC in this 2/2 multisig address (2 BTC total). The exposure for the sender is 2 BTC (1 BTC for the goods, and 1 BTC for the bond), and the exposure for the receiver is 1 BTC (for the bond).

This is not a 2/2 multi sig. As far as I am aware, DNIS is a new way to use smart contracts. It's a linked chain of smart contracts, where the execution of the previous contract is confirmed by the next executor in the chain who is then able to release the previous contract's bonds. Please look over the graphs. If I'm right, this is what is most important in what I've proposed because the applications are farther reaching than anonymizing the U.S.P.S.

Presumably, the receiver would have already purchased the package from the sender. So the bonds are effectively equal.

I'm not sure what you mean with "The public key would not be included in this contract" as the multisig address would require the public key for both parties for it to be created. Are you referring to a 2/2 multisig address, where a transaction is signed (outputs specified) by one of the parties but not both? Or are we talking about different things here?

In fact, only one signature is ever required to release a bond. However, it's neither party involved in the contract. It's the next participant in the chain of contracts. The exception is the last contract, in which the sender is able to release at any time. However, the incentives are aligned so that his/her only rational decision would be to release the bond only at the time the entire chain has completed (otherwise, he/she would have the most to lose and nothing to gain).


I'm not 100% sure that Bitcoin smart contracts can support the system I outlined today. However, my understanding of cryptography and software engineering tells me it is possible to create, relatively easily. That much I am 100% sure of.

If the node puts 1 BTC (in our example) up as a bond - what guarantee does he have that he is not sent a brick? How can he force the release of funds after he has sent it? Is he at risk, if he sends it but a node somewhere down in the chain does not send it? What happens when the package is authentically lost?

The node's guarantees are economics and rational decision making. The node does not put up a bond unless the sender simultaneously puts up a bond + a commission. Thus, there is no incentive for the sender to send a brick without incurring greater loss than the node. Neither the sender nor node would be able to release the bond unless the contract was successfully executed.

The sender must know the address of each node. If the government agency is the sender, they would be able to build a map of the system. If they keep doing it, at some point they would have found most of the nodes that relay. After that, they can act as a relay and find the end points.

Both the sender and recipient could create these routes. And in fact, it may make most sense for both to create small routes that unknowingly link to one another and span jurisdictions.

I'm still a bit fogged as to what kind of transaction this is.

I can't tell you a name other than the Death Note Incentive System (what I'm calling it), because I've never heard of this algorithm prior to thinking of it. It is outlined in the graphs.

Another concern I would have, if I was a sender, I would have to ship the item (1 BTC invested), pay the bond (another 1 BTC invested), assuming 5 nodes: pay 5x the bond per node (5 BTC invested): so I am risking 7 BTC. If a customer wanted to destroy me, he would order things with different aliases (or hacked accounts), pay 1 BTC per transaction himself (which he would lose), and I would lose 7 BTC as a sender, and nodes would be collateral and lose 5 BTC in total (and demotivate them). Quite a multiplier.

Yes, whoever creates the route assumes the most risk (this could be sender, recipient or both). However, in w/e marketplace they are transacting from, both would have ratings. Furthermore, on any one-to-one contract basis (which is all you'd ever see, as any party in the system other than the creator of the route), the risk is always equal.

It's not clear to me what problem you're trying to solve, or what attack you're trying to prevent.

First class mail inside the US is protected, unless the postal service has a search warrant:
https://postalinspectors.uspis.gov/contactUs/faq.aspx

... so why doesn't the sender just send directly via first class mail? The fewer people who know about the transaction, the more privacy. What stops one of the intermediate senders from opening up every package and then creating a nice little database of who received, what, when? (before packing it back up and sending it along, so they get their commission/deposit back)

If there is a search warrant or the package comes from overseas, and the package contains something illegal, I don't think law enforcement will care much if the intermediate sender/receiver says "I had no idea what was in it, I was just going to pass it along." I am not a lawyer, but either "conspirator" or "accessory to a crime" might stick.

Delivery by private drone to anonymous GPS coordinates is just about the only anonymous physical delivery system I can think of that would have a chance of working. And even that is easily defeated by a little bit of physical surveillance at the drop site. Maybe the drop site could be off the coast, where your private submarine is waiting to take delivery and then skeedaddle....

I'm not trying to prevent one attack. I'm trying to preserve privacy, as well as prevent collusion and eliminate trust by enforcing the curation of people's incentives with economics and the security of the Bitcoin protocol. It's a matter of aligning the incentives of each individual perfectly, so that there is one possible rational decision to be made in a chain of synchronously executing smart contracts whereby no trust, rating system, or custodial third parties / oracles are required, and whereby the accumulation of the execution of smart contracts as a whole equate to the best possible outcome for the system as a whole.

If you are open to it, I would ask you to examine the lower level algorithm I am describing, Death Note Incentive System. It's how I'm using the smart contracts that I think could be important. The higher level application is irrelevant by comparison. I described the USPS app because: (a) describing DNIS by itself is not easy for me (b) i assumed it would be easier for people to understand through example, because most people tend to discover by analogy rather than by first principles

My suspicion is that the database is relatively easy to mitigate, but I need to think about it some more.

Drone delivery I've given some thought as well. It occurred to me that one could create a perpetually flying drones via cell phones (gyroscope, accelerometer, GPS, and 4G over TOR) and sell them in decentralized, anonymous marketplaces. I think whoever tries this will make a substantial sum in proceeds. I could see it beating amazon to using drone delivery, as FCC regulation would not be a concern for people in these markets.

Interesting, but I think such a project will be more effective if it leverages existing reputation systems and legal structures. Look at the benefits of Uber and AirBnb, and how they achieve impact. Anything that challenges laws in a subversive manner is going to face the nation states power. What makes much more sense in my opinion is to thing about how supply chains could be improved by interfacing with what exists, or focus on cross-border trade and transactions. These kinds of things are very general problems to be solved. Most likely there will be some interface with existing laws (the SC will be localized in some way).

I don't like that reputation systems respond retroactively to error. I suspect the best approach will be simple, based on fundamental structure and not likely analogous to other systems such as Uber and AirBnb.

--

A hint at other suspected applications:

I think DNIS can be programmed with multisig contracts for something I call "peopole redundancy" to mitigate risk in overall execution of the chain. For example, if you wanted to confirm someone's death without centralized smart contract oracles before executing a part of a DNIS system, you could enlist several incentivized peers with such instructions where N of M peers are required to confirm the death and N is less than M.

[Jushe]

I'm just going to leave this here.

http://cointelegraph.com/news/115571/te ... e-dark-net

[Daniel]

I'm just going to leave this here.

http://cointelegraph.com/news/115571/te ... e-dark-net

Interesting...

This gives me a new idea for a DNIS application: Decentralized Inventory.

In my first application proposal, I show how people can transfer real world assets through the mail anonymously. In this one, I'm going to show how vendors can use this to spread out and manage a decentralized inventory without ever seeing or interacting with it themselves.

So before I continue, I'm going to sort'of change the problem so that it's not so specifically geared towards illegal activity (again, that's not my intention here).

Vendors like Amazon typically have centralized warehouses or storage facilities of some kind to manage their inventory. And they may have many, but generally they're going to maximize the space in each.

This is actually a point of failure. What happens if the warehouse burns down? All that inventory is gone. Sure, they might have insurance, but that's also an extra cost incurred by them all the time. Like rating systems, insurance doesn't prevent problems, but rather it responds to them retroactively. I think any system designed like this is probably not mathematically correct.

So imagine the same idea as before, and to simplify it, go by the first graph (the shortest chain). The sender holds the release keys for the last node (i.e., recipient). Well, in this algorithm, it is understood by the recipient that the sender will not immediately release the bond once it's received.

Instead, the recipient acts as a mini warehouse. Whereby, an anonymous package shows up and the recipient holds it for some duration of time. This "warehouse" is so small that he holds one little product of minuscule value. He still has a bond up equal to the value of the package and his incentives are still aligned exactly as they would be with the USPS algo.

Now imagine the sender orchestrates this for thousands of mini, incentivized warehouses. He holds the release keys to all of them. When he sells a product on a decentralized market, he establishes a new chain with the "actual" patron (it might be possible to avoid hops here, too, but I'd have to think about it more). He instructs that warehouse to deliver the product to this new patron, linking it to the new chain of smart contracts.

As long as the incentives are still aligned properly, he could manage a massive inventory among thousands or more random peers who hold tiny pieces of it, who don't know each other, and aren't the wiser as to where the inventory originates or goes or who is actually orchestrating it. The vendor never has to see the inventory, and he can control it all anonymously using Bitcoin and smart contracts.

Thoughts?

[bitkilo]

This is an interesting post thanks.

Your idea of decentralized warehouses sounds to me sort of like a main dealer setting up a chain of sub dealers who each control their own product. If I'm off track let me know.
If this is close then the main problem is going to be the security of the "goods" at each " decentralized warehouse" theft often occurs at the lower levels.

This is a topic that interests me a lot,
Are you aiming this at domestic or international transport?
For domestic local i would say just a "dead drop" of sorts would work better. ie. The sender organises a drop of the parcel in a certain location then sends the buyer the GPS co-ordinates via encripted message.
This way the buyer never meets seller and never even knows where his parcel will be dropped until it is already there and the sender safely at home.

International is harder especially when you live on a heavily guarded island

[Daniel]

This is an interesting post thanks.

Your idea of decentralized warehouses sounds to me sort of like a main dealer setting up a chain of sub dealers who each control their own product. If I'm off track let me know.
If this is close then the main problem is going to be the security of the "goods" at each " decentralized warehouse" theft often occurs at the lower levels.

This is a topic that interests me a lot,
Are you aiming this at domestic or international transport?
For domestic local i would say just a "dead drop" of sorts would work better. ie. The sender organises a drop of the parcel in a certain location then sends the buyer the GPS co-ordinates via encripted message.
This way the buyer never meets seller and never even knows where his parcel will be dropped until it is already there and the sender safely at home.

International is harder especially when you live on a heavily guarded island

My pleasure.

Disclaimer: This is still just a thought experiment. I'm responding under the context of hypothetical questions/concerns posed. This is not advice. I'm not encouraging anyone in any way whatsoever.

The warehouse participants wouldn't be dealers, because they wouldn't accept payment for product. Furthermore, they would be sending to another link in a new chain of smart contracts, so they wouldn't even be delivering the product to a consumer. Lastly, they wouldn't know what they're even moving around (legal or illegal) because there is no incentive to find out.

If they did forcibly choose to find out (irrational behavior), they'd potentially only be putting themselves at needless risk because there would be nothing they could do about it if it were something illegal. They don't know where it came from or where it's going. They just put themselves in a situation to where they are now knowingly in possession of something illegal (and thus can be convicted). And if they did do something that irrational, it shouldn't hinder the system as a whole because the error would be so minuscule and isolated (I'd call this natural error).

And just to clarify -- these warehouse participants wouldn't "control" anything. They have one rational decision once the contracts are established: send when instructed. Otherwise, they're at a loss greater than the value of the package if they stole it, so there is no need for extra security. Bitcoin smart contracts, economics / game theory, and rational decision making are prophylactic insurance to the safety of the product as well as the reliability of the system as a whole. It's preventing error in the system before it ever occurs by simply aligning the incentives properly. This is much better than a rating system or actual insurance (both are retroactive to error).

By definition, the warehouse participants wouldn't even be mules if it were something illegal because presumably they would transport via the postal service (which would make the USPS a mule, actually).

Refresher: I don't want people to focus too hard on how this algo can potentially be used illegally. It's important to remember that "all" technology can be used illegally. Cell phones, the internet, USD, cars, etc., -- these are all technologies which can be used illegally and frequently are.

Having said that though, I would say that in theory if an illegal drug dealer actually implemented this, he could be undiscoverable. That is to say he could manage the entire operation over tor and never have to see or physically interact with a product, buyer, or wholesaler. It would be the first ever system like this that is 100% decentralized in nature. And as far as I can see, there would be zero risk for a sophisticated dealer in such a system.

On the other end of the spectrum -- By my understanding of federal and most states' law, you have to "knowingly" be in possession of an illegal substance to be convicted for it. Thus, in theory, the warehouse participants would not incur any meaningful risk either.

The reality of this kind of potential theoretical use case is that the Bitcoin smart contracts and decentralized marketplaces would be executing the dealing. Those technologies become the dealers and the orchestrating "dealer" (probably need a new term for this person) would be in the same boat as everybody else really. Once the contracts are setup properly, it limits even his own rational decisions to just: find buyers, accept payments, and authorize shipments. If he does anything else, he is at a loss once any inventory has been dispersed. In some sense, the orchestrating dealer does not even have the right to choose his own customers, because they're all anonymous and would be matched by w/e marketplace.

Once any kind of working system is 100% decentralized like this, it naturally becomes fully autonomous and redundant. It's a lot like a government that is enforced by Bitcoin but w/o the coercion.

As for dead drop - this is logistically inconvenient and it adds a lot more risk. If the buyer has to fetch a product, he becomes a mule as he transports it back to himself. So in either kind of system, legal or illegal, dead drop does not seem like a good approach.

The underlying algorithm is agnostic to whether it's used domestically, internationally, or both.

[bitkilo]

I still see a couple of problems with this but i guess nothing is perfect.
First, the only way i see this would work is if was started right at the top and in this contex that means the production stage. If this is started half way down the ladder then its already fucked for the main man because he would have to trust his supplier, if his not going to be at the deal then he may get "ripped" especially if there is no contract between buyer and seller at this stage.

2) I think you may be putting too much of your own trust into "rational decisions", this is the human race, something that is unable to be trusted to make rational decisions everytime.

From the "dead drop" standpoint then your right why not just use the postal service it would be more secure but you have to also remember that there will always be the biggest customers to deal with "addicts" , these people don't care about scoring their own drugs and they will want them asap, but I guess the street market will always be there.

Keep posting I'm genuinely interested in this topic.
Don't think I'm trying to find fault in your experiment, just trying to fully understand it and point out things I dont understand or think may fail.
I like your way of thinking.

[Daniel]

I still see a couple of problems with this but i guess nothing is perfect.
First, the only way i see this would work is if was started right at the top and in this contex that means the production stage. If this is started half way down the ladder then its already fucked for the main man because he would have to trust his supplier, if his not going to be at the deal then he may get "ripped" especially if there is no contract between buyer and seller at this stage.

2) I think you may be putting too much of your own trust into "rational decisions", this is the human race, something that is unable to be trusted to make rational decisions everytime.

From the "dead drop" standpoint then your right why not just use the postal service it would be more secure but you have to also remember that there will always be the biggest customers to deal with "addicts" , these people don't care about scoring their own drugs and they will want them asap, but I guess the street market will always be there.

Keep posting I'm genuinely interested in this topic.
Don't think I'm trying to find fault in your experiment, just trying to fully understand it and point out things I dont understand or think may fail.
I like your way of thinking.

I recognize you are excited about this thought experiment (that's great), but for the sake of any scholarly readers, I would ask you to please try to keep this discussion free from rash language. It might put people in a bad mood or give the wrong impression when they read it.

Disclaimer: This is still just a thought experiment. I'm responding under the context of hypothetical questions/concerns posed. This is not advice. I'm not encouraging anyone in any way whatsoever.

What you are suggesting under the hypothetical context you are suggesting it is not necessary. An "illegal" producer is always going to be at much higher risk in this system, because the initial point of production is always going to have some unavoidable centralization (you could substantially mitigate it with this algo, but there has to be place(s) where it's physically produced at). For this reason, presumably, the producers would be in jurisdictions where it's legal to produce w/e product.

Under your posed context, this system would work best for resellers who are in jurisdictions where the product is not legal. Let's assume hypothetically that such an aspiring reseller (who we'll call "Bob") wants to become the first truly undiscoverable vendor using this system.

Bob would have to start out as a buyer and he could use one of the centralized dark net markets which exist today. So yes, the "start" wouldn't be perfect and there is certainly an increased likelihood of some error in this initial step. However, even the centralized marketplaces online today should be reasonably safe given their rating systems, so the likelihood of a one-off error in starting this system should still be minuscule. Moving forward, if all vendors operated using DNIS, the system would be theoretically "perfect", at its strongest, and only susceptible to natural error.

Bob would start by orchestrating an anonymous delivery route for his purchase using the algorithm I described above (the shortest chain), but instead of him being the final recipient it would just be another random peer (we'll call this guy the "mini warehouse"). Instead of purchasing w/e product he wishes to put into inventory with his real shipping address, he'd just use the first address in the DNIS chain he orchestrated (which would be in no way related and is not connectable to him). Eventually the product would end up at the mini warehouse as it traverses the chain (which is also unrelated and not connectable to him). Bob would not release the product until he found a buyer.

It's really that simple. Bob would have successfully started his business completely anonymously. He holds inventory he has never seen or interacted with before (and can verify that by just anonymously messaging the mini warehouse over a secure channel), and he can anonymously instruct the mini warehouse to deliver to any buyer he finds using the algos above.

As for trust in rational decisions… This system relies on very direct, quantifiable rational decisions. It directly associates its incentives with economic value. If you need to think about it analogously: it relies on rational decisions about as much as Bitcoin does to incentivize its miners. That works well, as we all see. Both systems just utilize game theory and rational decision making.