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Bitcoin's new alternative on theft (Multi Signature Address Generation)

Buyer-Seller Escrow, with or without third-party Author: Alan Reiner (Armory) Orig Date: 04 April, 2012 First Draft: Sorting out ideas, and event sequences, handling details like who signs what when and where change outputs and fees fit into the equation. Example Transaction

Here's an example of Alice and Bob setting up the transaction. Bob posts an item on craigslist, knowing that unknown, untrusted Alice will try to buy it. In this case, Bob is the seller and will set the "Risk Deposit" (could also be "Escrow Deposit"). This can be negotiated by the buyer, but I expect that something like 15-25% would be standard and not a point of contention. Remember, buyer does not trust seller, and vice versa.

Bob makes craigslist posting identifying the item for sale, the price (20 BTC), and the desired "Risk Deposit" (20%) Alice finds the posting and emails Bob saying "I'll buy it for 20 BTC, 20% deposit is fine, here's PubKeyA, and let's use a third-party Charles." Bob agrees so he obtains a public key from Charles, and constructs a very wacky transaction: Inputs: (1) Bob 4 BTC (20% deposit) -- signed using SIGHASH_ANYONECANPAY Outputs: (1) 28 BTC to TwoOfThree(PubKeyA, PubKeyB, PubKeyC) (2) Bob's change output, if necessary Note that this tx is invalid because it has 4 BTC inputs, but 28 BTC outputs. Bob sends incomplete tx to Alice (probably via BIP 0010, but after modification to include a way to specify P2SH scripts) Alice verifies that PubKeyC belongs to Charles (if using third-party) Alice creates a perfect-sized input of 24+fee BTC, adds it to the tx, signs and broadcasts (Bob's sig is still valid because of ANYONECANPAY)

Now there is 28 BTC locked up in the network requiring two-of-three signatures from Bob, Alice or Charles. This could be a 2-of-2 tx without Charles, but if one party disappears (before tx completion) the money will be locked forever.

Three possible outcomes: Everything goes smoothly, Bob ...
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