Formalizing Cost Fairness for Two-Party Exchange Protocols using Game Theory and Applications to Blockchain (Extended Version)

Abstract: Existing fair exchange protocols usually neglect consideration of cost when assessing their fairness. However, in an environment with non-negligible transaction cost, e.g., public blockchains, high or unexpected transaction cost might be an obstacle for wide-spread adoption of fair exchange protocols in business applications. For example, as of 2021-12-17, the initialization of the FairSwap protocol on the Ethereum blockchain requires the selling party to pay a fee of approx. 349.20 USD per exchange. We address this issue by defining cost fairness, which can be used to assess two-party exchange protocols including implied transaction cost. We show that in an environment with non-negligible transaction cost where one party has to initialize the exchange protocol and the other party can leave the exchange at any time cost fairness cannot be achieved.