Syscoin 3.0 A Peer-to-Peer Electronic Cash System Built For Business ApplicationsJagdeep Sidhu, Msc.Syscoin Core DeveloperBlockchain Foundry Inc.Email jsidhublockchainfoundry.coAbstractSyscoin 3.0 introduces a novel implementation ofa decentralized marketplace, an asset infrastructure, master-nodes providing bonded validators for a PoW/PoS hybrid con-sensus model and instant pseudo-interactive zero-confirmationcryptocurrency transactions with double-spend protection.1. IntroductionSyscoin 3.0 builds upon Syscoin 2.0[Sid] with addi-tional implementation of an asset infrastructure, a zero-confirmation double-spend protected instant settlementscheme, a hardened decentralized marketplace, and master-nodes providing bonded validators for a Proof of WorkPoW / Proof of Stake PoS hybrid consensus model,leveraging the blockchain’s immutability and audibility.1.0.1. Z-DAG. Z-DAG Zero-Confirmation DirectedAcyclic Graph is an instant settlement protocol functioningacross all Syscoin services. Syscoin services consist ofAlias Identities, Certificates, Escrow, Offers and Assets.Each service is controlled via an Alias, in which ownershipis proven through a private key that matches eachunique address. Z-DAG organizes transactions based ondependencies to build the state in a deterministic fashion.This helps protect against double spends where an Asset istransferred falsely by creating multiple transactions throughmultiple nodes within a short time.Figure 1 shows the difference between a regularblockchain and Syscoin’s Z-DAG implementation. Syscoinnow has two consensus layers In the first layer, a Z-DAG graph of transactions are represented in the mempoolwithout a block, providing settlement in real-time. The sec-ondary layer provides confirmation and conflict resolutionpreventing double-spend events through existing Proof ofWork consensus.Verifying client nodes creates a graph of transactionsby looking at the sender/receiver list of Asset transfers. Acircuit detection algorithm is applied read below Hawickcycle detection and used to remove cycles from within thegraph to create a DAG Directed Acyclic Graph. Once theDAG is created it is topologically sorted with an Assettransfer consensus code being processed in sequence, to a deterministic state among the entire network inconsensus.Figure 1 Current Blockchain design vs Z-DAGZ-DAG can be applied to state changes similar toUTXO updates to Bitcoin. If any discrepancy occurs, Proof-of-Work PoW will override and replay the correct orderof events according to the miner; this is ensured by savingthe previous state on every block and rolling back to theprevious state prior to every block.A User Interface layer will notify the user of conflictsin real-time, making the transaction occur between 3-5seconds statistically the amount of time needed to ensurethat network takes to notice that 2 double spend transactionsare conflicting with each other. This is possible throughSyscoin’s Masternode layer. Every Masternode is connectedto 25 or more peers providing high-throughput relay acrossthe network, averaging one or more network hops to transmitfrom the sender to the receiver nodes.The partition tolerance of the protocol is the PoW blocktiming which is set to 60 seconds on Syscoin 3. Every block,a new DAG is constructed from the transactions within thatblock. Unlike other implementations that have no PoW tofall back on, there is no case where the DAG tends toward anincorrect state over time.To accurately detect double-spends,other implementations such as Phantom[SZ] or Spectre[Zoh]must use an algorithm to replace the longest chain rule toderive the order of events and attacker sequences in a graph.These implementations end up in a more complex game-theoretical situation that has not mathematically been provento be accurate in all cases. Syscoin relies on the thoroughlytested Nakamoto consensus model to arrive at a consensusover time rather than simply relying on a DAG.1.0.2. Hawick cycle detection. [HJ] Hawick and Jameswere able to detect a circuit in a graph containing edgesthat start and end at the same vertex, as well as multipleedges connecting the same two vertices. A similar is implemented in the Z-DAG functionality as clients verify,extract cycles and create DAGs in order to process Assettransfers sequentially.1.0.3. Order of events preservation and conflict resolu-tion. A topological sort is applied upon the DAG. This getscreated as a result of the Hawick detection and removalof cycles from the graph of transactions representing Assettransfers. Upon receiving a transfer, a timestamp is addedto the Asset structure.Figure 2 DAG with topological sortingWhen creating a block, the miner is tasked with orderingAsset transfers from oldest to newest. There is a non-enforced 10-second delay applied to transfers, preventingAliases from sending an Asset within the minimum latencyperiod; this allows the transactions to arrive in order at theminer. If an Asset transfer is detected within the minimumlatency period, a conflict state is set within the consensuscode and users will have to wait for the next block to confirmtheir transfer. Asset transfers are ordered on a first come,first served basis; thus, clients choosing transaction fees ontheir dependent Asset transfers that are higher than transfersthey depend on will not alter the order that they are put inthe block.Figure 2 shows us the typical cyclical graph that can rep-resent the payment structure of assets between individuals.However to create a DAG we need to remove cycles andtopologically sort the graph in order of dependence. In thisexample, 2 circuits exist and removing the edge’s 3 to 2 and7 to 6 allows us to create a DAG with a valid topologicalsort of 6 4 5 7 2 0 1 3.Figure 3 Conflict Resolution within Z-DAGFigure 3 illustrates three parties, A, B and C. A sendsthe same coins at the exact same time to both B and C.A part of the network would interpret the transaction as Breceiving the funds, the rest of the network would see C asreceiving the funds. With standard blockchain implemen-tations, the discrepancy would be flagged as a conflictingtransaction in real-time. Both parties would wait until thenext block, resolving the conflict. In this case, the minerfirst sees the payment from A to C and the transaction fromA to B is classified as a double-spend and discarded.1.1. CAP TheoremThe CAP theorem[Bre] states that it is impossible fora distributed data store to simultaneously provide morethan two out of the following three guarantees consistency,availability or partition tolerance. Bitcoin tries to provide aguarantee that transactions are settled, but mathematicallyit is not able to do so. Z-DAG trades some consistency forsome availability. Since it is unlikely that a double-spend orre-organization will change the state of someone’s balance,we do not wait for settlement finality by waiting for blocksto confirm. This drastically increases the usability in point-of-sale applications.The allowance of instant settlements and increased avail-ability requires paying additional attention to users simplytrying to double-spend or send transactions too quickly,which may cause the miner view to change from the generalnetwork view. The DAG will order the dependency graphof transactions and process in sequence, allowing for betteravailability when it comes to instant state changes. Thesame CAP constraints as Proof-of-Work will provide a moreresponsive money transfer mechanism that may be used asa transaction processor instead of simply a settlement layer.1.1.1. Point-of-sale applications. The combination of usingAssets with Z-DAG will allow for point-of-sale applications,providing service in real-time exchange for cryptocurrencyAsset tokens.1.2. AssetsSyscoin Assets provide a layer of tokenization on top ofthe Syscoin network. Use cases include loyalty points, coinsbacked by physical assets, and service backed currency.Syscoin assets can also track individual minted tokens ass during transfer of ownership. The creator/owner ofthe asset can mint and allocate tokens to other alias iden-tities, which can then subsequently transfer ownership oftokens to other alias identities. The tokens can be dividedup to a definable amount of decimal places, allowing for aflexible unit-of-account model depending on the use case.For example, in a gold-backed asset token, one maywant to track ownership of entire gold bars which are storedand audited in a vault with serial numbers. Syscoin assetscan track s when sending tokens, so you can placeownership of the gold bars and link them to the externalserial numbers through Syscoin’s off-chain data-anchoringmechanism. An off-chain data file associating the tokens to serial numbers will anchor them cryptographicallyto the asset object from the asset owner. A central issuerwould allow redemption of the bars based on ownership oftoken s.Generally the assets are defined with a quantity and aminimum dividable quantity a precision field. The trackingof individual s and anchoring of the subsequent datamodel to the asset through off-chain anchoring allows forexternal services/assets/business practices to be distinguish-able when linked to cryptographically secure and verifiableownership of tokens.Sending allocations of an asset involves the Z-DAGprotocol to allow for real-time point-of-sale applications in atoken to service model. The sender would send the receiversome tokens and receiver would in real-time detect double-spends within roughly 10 seconds. This provides a way forthe receiver of a micro/low value transaction to be ensuredthat it is statistically likely that their funds will confirmon the network, and that the contract between sender andreceiver can complete.For efficient operation of non-fungible tokens tokensthat track ownership individually like the UTXO coinmodel we developed a way to store the ownership of thesetokens as ranges. ranges represent a range ofownership tokens that an asset or an alias identity owns suchthat when transferred or received it will split and merge theranges respectively.SA SBLet SA be the superset range of s of the sender andSB the strict subset s range being sent to the receiver.Then it follows that we can derive SC as followsSC SAnSBFor receiver to send a set back to sender we need toprove that S1B is a strict subset of SBS1B SBIn addition, we apply to S1AS1A SC[S1Band it follows that if S1B is the same as SB thenSA S1AWe may apply this generally to any range sending/re-ceiving of assets with ranges. Please refer to AppendixD for a simple example.1.3. Offers and decentralized marketplaceWe have developed a marketplace where users can se-curely and reliably buy and sell a variety of items. Syscoinusers will be able to directly create and manage their onlinestores through the web-portal or offline on their desktop ormobile wallets.Users will be able to view listing descriptions, price,geo-location based listings and services if enabled by themerchant, seller’s profiles, and reputation.Availability of merchants will be filterable in the contextof searching for offers. It will also allow for buyers toquickly get in contact with merchants and acquire supportfor a product in real-time prior to purchase.Figure 4 Syscoin Service IndrSorting and filtering will be provided by supplementaryoff-chain databases indd by the Syscoin core throughZeroMQ messages as it sees offer transactions in real-time. This will allow for greater interactivity with data thanprevious implementations which relied on the blockchainreference software for storage and querying/filtering.1.3.1. Digital sales. Certificates may be sold in conjunctionwith offers to create sales of digital ownership. A certificatemay hold private ination such as codes or registrationkeys that are redeemed for some service by the buyer ofthe offer. Certificates can be automatically transferred to thebuyer upon completion of sale.1.3.2. Auctions. Offers on the Syscoin plat may becreated as an auction with a fixed countdown time, minimumbid and reserve price. Offers can now be Regular Offers,Timed Auctions or Timed Auctions with a Buy it Nowoption.In our auction system, we allow merchants to configuremultiple options. They may require a deposit this imitateshow current Real-Estate transactions work, a deposit is oftenrequired to show earnestness, a witness or notary, and areserve price. The escrow system works in conjunction withthe offer and identity modules to ensure the correct offeris sold to the winning bidder under authorization of theseller. Because these are smart contracts running throughconsensus on the blockchain, auctions are just as secure asregular transactions.1.3.3. Reselling with whitelists. Merchants may leveragea whitelist feature to offer re-sellers the chance to selltheir offers for a commission. This allows drop-shippingof goods and services while offering provable sales throughthe decentralized marketplace. The merchant who createdthe offer controls the whitelist and can add a discount levelon a per entry basis for each re-seller. If the merchant setstheir offer to private, then end users must purchase the itemthrough one of the participating re-seller offers.1.3.4. Feedback and rating system. Escrows and offerssold through the marketplace offer a convenient way torate and leave feedback on a per sale basis. For an escrow,one rating is accepted a number from 1 to 5 to representa users satisfaction level with a transaction, with 1 beingthe least satisfactory and 5 being completely satisfied andrecommending the user to others. Ratings and feedback canbe given to and from arbiters, merchants and buyers.1.3.5. Multiple payment options. Syscoin offers the di-rect conversion, transfer and ownership of hundreds ofcryptocurrencies today. The Syscoin marketplace will allowoffer payment via the complete set of coins by adding anabstraction layer converting coins to Syscoin upon purchaseand locking the Syscoin in escrow as part of the normaloffer purchase flow. Native support can be for any cointhat supports the same private key and signature schemeat as Syscoin does; this allows client-side conversionfrom the native Syscoin address to the desired address suchthat the same private key can unlock payments in the othersupporting blockchains where the private key can be used tosign off on spending those coins. Direct support for Syscoinand other Assets will work differently. Instead of sendingmoney to an address, an Asset transfer would happen be-tween identities since Asset transfers use the identity as instead of coins.1.3.6. Shipping notification system. A payment acknowl-edgement button on escrow and offer payments allows amulti-use notification system to the buyer that either themerchant acknowledges payment and/or they are about toship the product. Tracking and other shipment inationcan then be sent