LNREP - A draft specification of the LN Reputation and Arbitration Network protocol
LNREP defines communication rules between LNREP nodes. Each LNREP node assumes a Lightning Network node exists, and could be implemented as a plugin of the lightning node, or independent daemon. An LNREP is associated to an identity, and the identity is identified by the lightning node's pubkey. The reputation, history, esrow score, etc. are all associated to the node.
The purpose of the protocol is to make it easy to:
- Discover reputation of nodes (both as a trader or arbitrator)
- Select from available arbitrators (escrow agents)
- Complete multisig or HTLC-HODL transactions
This system could become the backbone for other more advanced applications such as a decentralized exchange, or decentralized freelancing marketplace, and other such activities that require reputation or escrow.
An LNREP-enabled Lightning node can run as:
- Trader-only
- Trader and Arbitrator
Nodes in the arbitration network can receive income for participating in 2-of-3 (or other n-of-m) multisignature transactions. The job of arbitrators is to assist in resolving disputes, generally following agnostic procedures and code of conduct. Each arbitration node will have a reputation score based on the number of successful dispute resolutions.
Available arbitrators are on a globally public list of nodes willing to arbitrate transactions. Their reputation, number of transactions, size of transactions, public comments, fee rate, etc. are all listed together on the list.
The transaction participants should agree on an arbitrator. Funds can then be escrowed in two ways:
Short-term:
- HTLC escrow for instantaneous deliveries (e.g. sending an ebook, etc)
- On-chain n-of-m escrow for long-term deliveries (e.g. sending a physical book, etc)
An arbitration case is opened when there is a dispute. Both parties submit their case and evidence to the network for evaluation. After a period of collecting information from the parties, each node will submit their opinion on how the case should be resolved. This is done in a voting process, where the opinion is how much of the funds locked in escrow should go to each party in the transaction. In the case of "no opinion" the funds are split 45/45 with the remaining 10% going to the arbitrator(s) as a fee for their time.
For successful transactions, both parties will gain a reputation score, as well as the arbitrator reputation (for responsiveness). For disputes, the arbitrator will receive a more comprehensive reputation score that includes a review from both parties on the outcome. Since it is likely that a dispute makes both parties unhappy with the resolution, this is taken into account with remarks in response to the review.
After successful transactions with or without arbitration, the participants can rate other nodes on their experience. They can allocate a trust-level between 0-100 indicating the level of trust they have with the other party. The system can then determine how much overall trust a single node has, against all other nodes. This can give some, but not perfect, insight into the reliability of a given agent.
At the end of the day, trust networks are subject to manipulation. Collusion can exist between a trader and arbitrator, or a fake reputation could be built in a sybil-attack way. So, due diligence is required.