Hashcashed Reputation with Application in Designing Watchtowers

Abstract: We propose a novel reputation system to stimulate well-behaviour, and competition in online markets. Our reputation system is suited for markets where a publicly-verifiable "proof-of-misbehaviour" can be generated when one party misbehaves. Such markets include those that provide blockchain services, such as monitoring services by watchtowers. Watchtowers are entities that watch the blockchain on behalf of their offline clients to protect the clients' interests in applications such as payment networks (e.g., the Lightning network). In practice, there is no trust between clients and watchtowers, and it is challenging to incentivize watchtowers to well-behave (e.g., to refuse bribery). To showcase our reputation system, in this work, we create an open market of watchtowers, where watchtowers are motivated to not only deliver their promised service but also reduce their service fees in competition with each other.