Fighting Uncertainty: A Decentralized Solution for Transparent and Frictionless Digital Handshakes
This issue of Overtheblock’s PoC Series focuses on building trust in the digital handshaking process between mutually untrusted parties who need to agree safely, fairly and transparently. The post is part of an ongoing effort aimed at showcasing how DLT-based solutions may be leveraged to undertake pressing business and societal problems.
(Un)trustable Digital World
Trust is a complex notion influenced by various circumstances. The agreements made in the traditional economy, regardless of their nature and complexity, involves a common form of face-to-face interaction, such as the classic handshake at the end of a contract stipulation. This form of trust deriving from the symbolic physical act has gradually disappeared in the digital and globalized world. For those who work in the second-hand market or operate in different countries that are not subscribed to platforms that offer due diligence services, the derived trust tax results in many transactions not taking place. More and more agreements are increasingly made through centralized tech intermediaries, shifting the trust paradigm from stakeholders to platforms. Besides, the pandemic has reinforced the trend further. The most affected actors are micro-businesses for which a large number of transactions are conducted only through verbal agreements. SMEs instead are struggling to upgrade their digital tools in the face of an estimated 17.3% bankruptcy rate for next year.  Gig Economy workers (freelancers) continuously report inadequate protection against late payments, working conditions, debt collection and related cost of justice.  The stipulation of digital agreements on centralized platforms is not transparent due to an unclear governance process that undermines the trust among users, involving an additional layer of risk since they can consolidate all the market power of those who cannot keep up the digitalization cost.
(Re)building Trust in Platforms
When we try to interpret the word “contract”, we generally fall into a common representation. The concept is frequently associated with a complex definition: a formal and signed writing with an intricate collection of clauses, articles, and annotations, where several thirds trusted and legal parties, from lawyers to notaries, are involved in the whole process from definition to resolution. Focusing on the core elements of a contract (agreement, cause, object, and form), we recognize that every day we stumble, willy-nilly, in the act of stipulating a contract even without the necessity of complex writings and legal parties. When we are buying a newspaper, a coffee, a plane ticket, or groceries, regardless of where and what type of activity we are doing, we agree in a tacit form, usually through a concrete fact, such as a handshake.
With the advent of the pandemic, more and more commercial relationships are built solely online: the salesperson and their customers never meet in person, disallowing the parties to meet even when it would be possible. This distance has put a wrench in things. Trust is now harder to develop. Nevertheless, handshakes are essentially influenced by the ability to strike a deal face-to-face, taking advantage of body language and eloquence to provide authenticity, omnidirectionality, and warmth during the agreement commitment, execution, and conclusion steps.  These qualities can coexist during a physical meeting but cannot be reproduced entirely on an online video call or a non-transparent platform.
The Era of Blockchain-based Digital Handshakes
Against the backdrop depicted above, the possibility to enable safe and convenient “digital handshakes” emerges as a clear priority for a plurality of stakeholders. With this thought in mind, we designed and developed a blockchain-based solution for stipulating digital handshakes guaranteeing transparency on identity, code and payments. The aim is to make available an open solution for all those who need to receive or provide a particular service, from freelancers to SMEs. From a technical point of view, the challenge is to go beyond the current limitations in the incumbent platforms by maximizing on-chain code automation and verifiability. We have identified four critical issues to address:
- Lack of trust. Trust can be seen as a measure of confidence or belief that the other party will refrain from opportunistic behaviour and act expectedly, thereby fulfilling the trusting party’s expectations without exploiting its vulnerabilities.  We have seen how trusting the platform blindly is dangerous due to the nature of the trust concept. As it recently happened in the case of riders of a well-known platform, they had to return the shares offered to them as a ‘thank you’ bonus for their hard work after the company listed itself on the stock market.  This becomes even more severe and demonstrable when there is no transparent and democratic governance, a mechanism for tracking changes and verifying recorded data integrity. Blockchain technology would never let these situations happen since the code of smart contracts is deterministic (e.g., if you buy a share, it is tied exclusively to you, and no one can force you to return it). The governance on protocol updates and contracts remain transparent with the opportunity to verify data and read the history of changes.
- Digitalization Costs. The intense acceleration in digitalization caused by the pandemic turns out to be a race against time not to lose one’s position in the market. Through our solution, we can provide a platform where the user can use a human-readable string to be identified and recognized within the platform after an easy registration process. The string could be declared externally to serve as a simple digital identity bound to the platform. The users can recognize freelancers and small businesses, reducing costs and complexity in providing their services by enabling digitized handshaking and payment systems (e.g., we think of the freelancer who offers marketing services).
- Late payments. Recent studies have reported that late payments are one of the most common problems among freelancers. Not even platforms with different guarantees are bypassed or do not have sufficiently clear policies to protect the customer against these behaviours.  We use a decentralized escrow service designed to secure the required amount of tokens for payments before notarizing and starting the handshake execution. Then, it automatically redistributes these finances to parties according to the handshake state.
- Expensive cost-benefit ratio for dispute resolution. Most of the time, the cost-benefit ratio of starting a dispute is unacceptable related to the negotiated value. Also, the missing governance transparency, no testimonies, high costs, and complex procedures are some of the nemeses for digital agreements when resolving a dispute. Traditional dispute resolution is a costly operation due to taxes and lawyer’s fee. Simultaneously, alternative digital solutions do not always seem to have had an impact on this aspect. There is rarely interest in matters concerning small amounts of money (and profit, too) from the legal parties’ viewpoint. The same can happen when there are fees that increase based on the transacted value. We have studied a more fair and decentralized dispute resolution mechanism that involves a pseudo-random selection of jurors- professionals or legal experts — to participate in a voting process to decree the winner of the dispute. We avoid unnecessary costs and complexity for the parties through our token staking mechanism, remunerating the jurors with a fair and equal redistribution of tokens.
Entering the Blockchain-based Digital Handshake
Figure 1 shows the high-level overview of the workflow for our digital handshake solution. Specifically, there are two different categories of stakeholders:
- Users. An individual or entity registered on the platform and uniquely recognized in the blockchain through a human-readable address. The user can have the Dealer’s role when it posts a request for a particular service (e.g., I need a website!) or Bidder’s role when it answers for satisfying a particular request. A user can play both roles, one for each handshake.
- Jurors. Professionals or legal experts recorded on the platform. They do not have a concrete motivation to resolve specific handshakes, but they are interested in receiving new dispute assignments to increase earnings.
The on-chain business logic is broken down into three smart contracts, where each solves a particular function:
- Token. A standard ERC20 token (DHS) offers price stability when making any form of contactless payment.
- Service. Core service that implements the entire set of features for making a decentralized digital handshake.
- Escrow. A service that locks amounts of DHS tokens for automating payments and retributions.
The stipulation of a digital handshake begins with the negotiation. Suppose that Alice is the director of an online magazine who needs to hire a freelancer for writing a blog post. Bob, a freelance writer, sets out to satisfy this request.
Alice and Bob negotiate the contractual terms, price and deadline of the handshake. Next, Alice locks the tokens for the payment and the tokens that serve as a possible remuneration tax for the jurors in case of a dispute; Bob locks only the latter. Then, the execution phase requires that Bob (the bidder) completes, delivers and notifies on-chain the article’s conclusion to Alice (the dealer) within the deadline. If the deadline has expired, tokens will be unlocked for both parties, which could retrieve and use for other handshakes, dropping the current one.
On the other hand, Alice must make a choice: accept Bob’s work and terminate the handshake unlocking the payment or opening a dispute. Alice and Bob will receive back the number of tokens locked for the dispute and a rating increase in the first case. Additionally, Bob will receive the negotiated payment for the handshake. In the second case, once Alice’s motivation and Bob’s defence have been received, the system will choose three jurors in a pseudo-random way to vote the winner of the dispute. Finally, the loser sees his stake equally distributed among the jurors and his rating lowered by one. At the same time, the winner will see their rating increased and their staked tokens returned.
Digital Handshaking DApp
The solution is designed and built on top of the EOSIO blockchain platform. We have chosen EOSIO for its technical characteristics as well as its economic efficiency. The Delegated Proof-of-Stake (DPoS) consensus algorithm places that platform among the industry-leading blockchains for performance and scalability. Configurable both as permissionless and permissioned blockchain may be released either publicly or privately. It allows flexible onboarding for the user through intelligent key pair recovery mechanisms, permission scheme and human-readable account names. Furthermore, EOSIO eliminates the concept of high transactions fees with the new EOSIO power up model leading to affordable transactions (below 1 cent each), avoiding resources to sit idle, removing barriers for additional resources, and flattening new users’ costs.  Those facts guided our choice for building a mature and likely relevant blockchain solution.
Figure 2 shows the architecture of the proof-of-concept of a decentralized application (dApp) implementing all the solution’s features described above. The dApp consists of a backend and a frontend repository.
The backend is entirely dockerized with Docker containers for the blockchain nodes and the server. The blockchain nodes can be started, populated as needs, stopped and restarted using provided scripts, both for development and testing nodes. The server contains a running instance of a rest API which provides communication with the MongoDB instance. The off-chain database is required to store personal user data (encrypted with the user’s private key) and long contractual terms and other descriptive information related to the handshake process. The data integrity is supported through a double timestamping mechanism (storing hashes on and off-chain). The backend contains the implementation of the Token, Service and Escrow smart contracts written in C++ with the related test files for each feature and use case.
The frontend is a React web application. To reduce complexity in user access, we have implemented a custom login component with a password. This works like the SoA client-side crypto wallet providers comply with the key’s security rules. The dynamic web pages have a tabular layout that allows users to move quickly between the various handshakes through a sorting and filtering system. The user bar that shows rating and balances always provides a track of token movements. The frontend communicates directly with the blockchain and the off-chain database through two different ad-hoc services. The blockchain service is implemented from scratch with the eosjs library to ensure greater freedom in managing transactions and transaction feedback.
Our solution based on EOSIO blockchain technology aims at supporting small players and the informal economy, exploiting the benefit of the intrinsic trust that DLT-based solution may guarantee through a verifiable and enforceable process. In this case, automated payment and fair dispute resolution. The intent behind the development of the Digital Handshake proof-of-concept was to showcase how blockchain technology can be an incentive for users to engage in business transactions by reducing the trust tax and providing more affordable access to justice. The dispute resolution mechanism relies on a decentralized escrow service, ensuring payment automation and pseudo-random choices that can be verified on-chain, allowing the concept of trust to be brought back to the platform, more precisely inside the code. The overall digital handshake solution thus allows individuals to agree in a secure, affordable and transparent way.
If we look at possible future developments, the potential of the solution does not stop there. Through the association of smart contracts with Ricardian Contracts, it could be possible to describe the execution of every single action of the computer code using natural language, thus creating a higher level of synergy between the code and the legal writing. Anonymity plays a fundamental role in the dispute resolution process and can be implemented to preserve one’s identity. Taking advantage of the latest progress of zero-knowledge proofs technology, it would be possible to eliminate any interest in unfair voting mechanisms (e.g., based on relationships with candidates or personal interest), increasing the trust concept of the solution. The off-chain database instance could be replaced with a modern protocol for decentralized file-sharing (e.g., IPFS) by increasing the degree of decentralization and fault tolerance.
We are just scratching the surface of a new paradigm of trust that will require time to evolve and become mainstream. The hope is that it will serve as a foundational layer for improving human interaction at both business and social level.
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Please cite as:
Corrias G., Favenza A., Ferro E. and Infantino C. (2021), “Fighting Uncertainty: A Decentralized Solution for Transparent and Frictionless Digital Handshakes”, OverTheBlock Innovation Observatory, retrievable at link
OverTheBlock is a LINKS Foundation’s initiative carried out by a team of innovation researchers under the directorship of Enrico Ferro. The aim is to promote a broader awareness of the opportunities offered by the advent of exponential technologies in reshaping the way we conduct business and govern society.
We are chain agnostic, value-oriented, and open to discussion.