Disputes

Contractual Obligations and Dispute Resolution:

All payment contracts are triggered by events or state changes and can result in either success or failure. In case of failure or breach, a dispute resolution process typically ensues. Traditionally, financial institutions have served as arbitrators between parties involved in such disputes. However, third-party verification is often costly, time-consuming, and lacks atomicity.

Challenges of Cross-Chain Disputes:

Disputes involving both on-chain and traditional payments are particularly complex due to the differences in settlement and finality mechanisms. When two parties enter a contract, they have agreed to fulfill specific obligations.

Contractual Incentives and Dispute Resolution:

If contract terms are met, both parties benefit. However, if one party fails to fulfill their obligations, it negatively impacts the other party. To incentivize performance, dispute resolution processes are essential.

• Jaylene's Incentives: If Jaylene performs her obligations, Ansem can choose to confirm or dispute. If Ansem disputes and Jaylene has proof of performance, she incurs a cost (z) but can resolve the dispute.

• Ansem's Incentives: Ansem's decision to confirm or dispute depends on the potential gains and costs associated with each action. If he disputes successfully, he receives a benefit (d) but incurs a cost (m).

Efficiency and Security:

For efficient dispute resolution and contract security, the costs of observability (m) and verification (z) must decrease over time. This ensures that parties are incentivized to fulfill their contractual obligations and that disputes can be resolved effectively.