A DLT-based Smart Contract Architecture for Atomic and Scalable Trading
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Distributed Ledger Technology (DLT) has an enormous potential but also downsides. One downside of many DLT systems, such as blockchain, is their limited transaction throughput that hinders their adoption in many use cases (e.g., real-time payments). State channels have emerged as a potential solution to enhance throughput by allowing transactions to process off-chain. While current proposals can increase scalability, they require high collateral and lack support for dynamic systems that require asynchronous state transitions. Additionally, the latency of channel initialisations can cause issues especially if fast interactions are required. In this paper, we propose an atomic, scalable and privacy-preserving protocol that enables secure and dynamic updates. We develop a smart contract-based Credit-Note System (CNS) that allows participants to lock funds before a state channel initialisation, which enhances flexibility and efficiency. We formalise our model using the Universal Composability (UC) framework and demonstrate that it achieves the stated design goals of privacy, scalability, and atomicity. Moreover, we implement a dispute process in the state channel to counter availability attacks. Finally, we analyse the protocol in the context of an asynchronous smart grid-based marketplace.
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