Oleg Andreev Contract for Bitcoin banking transactions

One of the problems with purchase and sale transactions of Bitcoins is the dependency on banks. As the banks themselves are threatened, they are cutting off banking services for Bitcoin exchanges, leading to minor temporary disruptions in the ability to quickly execute such transactions.

To solve this problem, I would like to revisit the Oleg Andreev Two Party Escrow Model for smart contracts, with some modifications.

The Oleg Andreev Model

In the Oleg Andreev model, the right to say that a sale was good lies only with the buyer and the right to cancel the sale lies only with the seller. One of these actions must be done for both parties to be better off than if no action had taken place. Also, both parties make a deposit equal to twice the value of sale. This creates an initial vested interested for both parties to either confirm or cancel the sale. If the sale is not confirmed or canceled, then both parties have their deposits stuck in the contract; an unacceptable situation for both buyer and seller. This creates an incentive for both parties to act.

The buyer can only say the sale was successful. This usually happens when he receives his promised item. He does not have the power to cancel the sale and therefore initiate a refund of both partys’ deposits. That right lies with the seller, who can perform only one action, to cancel the sale. The seller will typically say the sale was not successful when his sent goods are returned back to him.

The seller puts 2x the value of sale as deposit. The buyer also puts the same deposit of 2x the value of contract.

The seller sends the item to buyer. Now the buyer has only one option. To confirm the sale. If the buyer confirms the sale, then 3x goes to seller, and x goes back to buyer, and buyer has paid for the transaction. And all deposits are returned back.

Let’s say the item was not delivered as promised. Then the buyer either has to return the item or do something to make the seller satisfied. Because only the action from seller can let the original refunds go back to both parties.

The buyer must, then, negotiate and satisfy the seller that either the item has been returned or the buyer needs to return the item in case of non-returnable goods like electronic files. Then the seller can exercise his option to cancel the sale. In the case of cancellation, each party gets their 2x deposit back.

Using this model, it is possible to do Bitcoin transactions with any 2 parties anywhere in the world without the need of a central, trusted intermediary or escrow.

So, if a buyer in India wants to sell Bitcoins to a seller in Russia, both the buyer and seller must put twice the value of Bitcoins as a deposit towards the contract. If the buyer gets the bitcoins, he can say the sale is successful, and sends the seller 3x amount, with x returning back to him. But let’s say there is a problem in the transaction and the buyer does not get the Bitcoins. He can then negotiate with the seller to explain and request the seller to cancel the sale. If the seller cancels the sale, each party gets a refund of their 2x deposit back and the transaction is closed.

Modification to the Oleg Andreev Model

I propose a modification of this contract in cases where payment is made in Fiat currency.

Both the buyer and seller can put x as deposit toward a smart contract in the form of Bitcoins. The buyer can pay either directly in Bitcoins by confirming the sale in which case 2x goes to seller successfully concluding the sale.

The buyer could also send the cash directly to the seller’s bank account and ask the seller to cancel the sale after he receives the money in his bank. If the seller cancels the sale, then x as bitcoin deposit is returned to both the buyer and the seller. This scenario will provide liquidity to Bitcoins via direct, person-to-person transactions eliminating the need for centralized exchanges and dependency on banks.

Improvements in Bitcoin cash transactions as a result of this modification

This method will let any person transact with any other person in the world for Bitcoin against cash transactions without needing to trust each other. This transaction needs no centralized website, no centralized bitcoin exchange and, no third party escrow service. It creates a situation in which the buyer and seller are capable of transacting amongst themselves without the need to trust each other or know each other. This method would also eliminate the need for reputation ratings for both buyers and sellers.

Infrastructure needed for implementation of modified Oleg Andreev Contract model
1. A verified open-source code and execution intructions for both buyers and sellers.
2. Buyers and sellers have to be smart enough to understand this.