FUSION ‘Time-Lock’ Innovation Extended Explanation
Background and Demand
To date, digital currencies/assets controlled and managed by private key have been described by two attributes, one is the name of the currency/asset, the other one is its value (i.e. token type and quantity). This paper will describe a new and expanded notation for stores of value, implemented on the FUSION blockchain and enabling a new level of flexibility and ease of implementation for various financial functionalities on the blockchain.
Let us denote the name of the digital currency/asset as N and the corresponding quantity as M. Then regardless of whichever blockchain account system is used (UTXO or Account), from the user’s perspective, the reflection of a certain user, holding a certain Asset, at all times, can be represented by the following model:
That is, the user has a number (M) of encrypted digital asset, named N.
Furthermore, this existing blockchain notation supports the splitting of the number of digital asset held by the user. For example, the currently held asset (N, M) may be split into (N, m1) and (N, m2), among which,
M = m1 + m2
From the above, we can see that such a split is an atomic separation of digital assets at a certain time point and is suitable for the application scenario, of real-time transaction settlement.
However as we know, in traditional finance there are behaviors and scenarios, related to the value of future rights and interests, that denote the value exchanged over time (such as banker’s Acceptance). Banker’s acceptance is based on the creditworthiness of the payer (including mortgages and credits), and the bank as a third-party guarantor, to ensure that the payee is paid unconditionally for a certain amount on a specified date. Based on the banker’s acceptance, commercial transactions may be based on the future value of an asset, enabling a multitude of possible business transactions.
Asset ownership representation with time attribute
In the field of cryptographic finance, there are also financial behaviors that are based on unconditional execution of a future payment / token flow taking place on a specified date. We will call the ability to define the cryptocurrency/asset with its time dimension a “Time Lock” operation for crypto digital currency/assets.
To implement Time Lock on cryptocurrencies/assets, first we need to define the time attributes on the basis of extending the existing (N, M) model, using T1 and T2, which represent the start time and end time of the asset owned by the user, respectively. The model of the user assets ownership is expanded to:
（N，M） à （N，M，T1，T2）
We denote the current time as “ct” and use “∞” to represent it as any time in the future, when T1=ct, T2=∞,
Is used to indicate that the user has the right to digital assets (N, M) at any time, that is, to establish the user’s ownership of the digital assets.
Assuming T1 is t and t>ct, then
(N, M, t, ∞)
Denotes that the user will have the right over the digital asset (N, M) from the future time point t until ‘forever’/infinity. This expression means that the user will acquire ownership of the digital asset (N, M) at a future time point t.
Suppose T2 takes a value of t’ and ct<t’<∞, then
(N, M, ct, t’), (ct ≤ t’)
denotes that the user has rights to digital assets (N, M) from the current time to the future time point — t’. However in the further future, when ct> t’, the user will no longer have valid rights to digital assets (N, M). This produces two conclusions:
- In this model, T2≠∞, which means that the user does not have the ultimate ownership of the asset;
- When T2≠∞, over time, the user’s interest in the asset will diminish until it disappears.
Therefore, when there is T2≠∞, it means that the user does not really own the digital asset (N, M), but only represents the right to use within the period of [T1, T2].
The relationship between the two
For an existing encrypted digital currency/asset equity: (N, M, ct, ∞), with respect to a future time point t’ (t’ > ct), a split may be conducted for the digital asset, that is, to perform the Time lock operation under the parameter t’ on the digital asset, expressed as:
（N，M，t，∞）à t’ =（N，M，t，t’） +（N，M，t’+1，∞）
Here, t’+1 represents the next time point immediately following the time point t’.
The meaning of this Time Lock implementation is to split the current ownership of the digital asset (N, M) into a usage right (N, M) in the time period [ct,t’] and the future ownership of digital assets (N,M) at the time point. t’+1. We define this as a split operation for Time Lock.
Correspondingly, when the usage rights and ownership of an identical digital asset (N, M) have continuity in time, a time lock operation can be performed by merging the two into a current ownership, which is expressed as follows:
(N, M, t, t’) + (N, M, t’+1, ∞) = (N, M, t, ∞)
The meaning of this Time Lock implementation is when the user has a future ownership of (N, M) that can be redeemed at the time point of t’+1, and has the usage right of (N, M) in the time period [ct,t’], the ownership right of (N, M) can be obtained through Time Lock. We call this the Time Lock splicing operation.
Importance, Context, and requirements of this Innovation
Based on the above representation, it becomes possible to implement various financial services in cryptofinance, without relying on previously needed third parties such as banks and bankers acceptance. This will enable and accelerate the creation of new markets of tradable financial instruments, also relying on future token flows, on the blockchain.
In the account system provided by current blockchains such as Ethereum, some future value transfer behaviors can be formed through smart contracts. However, there are still great deficiencies in terms of constructing time-based financial behaviors, which are reflected in:
1) The transfer of some value in the future can be achieved by means of smart contracts or hash locking. However there are two problems with this approach. First, the transfer also requires the triggering of external conditions. It cannot achieve complete automation, and it cannot guarantee the realization of a definitive payment of future value rights.
Secondly, the future transfer is based on the premise of locking the current equal amount of assets, which limits the liquidity and cannot support the formation of asset value flows in cryptofinance.
2) Existing methods cannot support the transfer of future equities
Under the current existing conditions, the beneficiaries of future values cannot transfer the future earnings to third parties before the value is transferred.
In light of the above, we see that current tools and methods in the field of cryptofinance are not sufficient to fully implement flow of future values needed for cryptofinance. Therefore, in the process of implementing the above model, we propose that the Time Lock operation for encrypted digital currency/assets must also satisfy the following requirements:
1) The separation of digital assets in the time dimension cannot be achieved by relying on any third-party guarantees, so as to ensure that future ownership is not dependent on any third-parties, in the process of generation and redemption. The whole process has to be completely automated.
2) The split object needs to be based on the assets currently held by the user, to ensure that the future ownership formed by the split can ensure the redemption during the transfer process.
3) The usage right of the time portion generated by the split, and future ownership can directly transferred/transacted, e.g. as part of an agreed-upon execution of smart contracts.
4) There is no unique binding relationship between the digital asset being split as part of the above notation system, and the objects generated by the split. In other words, the split objects can be transferred and exchanged separately. If I have a time portion of an asset from some future t’ to ∞, and would like to merge it with the current portion of that same asset (from now to t’), I can do so using a different instance of a current portion of an identical asset (eg one which I have obtained from a 3rd party). The portions, in other words, are fungible, and do not have a unique identity.
Based on the above models and requirements, FUSION realizes the Time Lock operation, and provides support for important elements of financial behavior, based on the future asset value of encrypted (digital) assets.
Technical implementation on FUSION — Account/UTXO/SUTXO implementation
We introduce a time parameter P in the model, P represents a point between T1 and T2.
A Time Lock operation is performed, under the assumption that P=p, which is to split the encrypted digital asset (N, M, T, ∞) into (N, M, T, p) and (N, M, p+ 1, ∞), based on the future time point p. In the middle of the timeline:
(T, p) ∪ (p+1, ∞) = (T, ∞)
This completes the Time Lock split operation of the digital asset (M, N) at the future time point p.
Dual account system
FUSION designed a simplified version of UTXO account system. It still records and reflects user’s assets in way of Unspent Transaction Output, but does not support script execution. Therefore, this account system is called SUTXO.
FUSION expands the user’s account system into Account+SUTXO. The user’s current digital asset is recorded in the user’s Account account in the form of (N, M). Assets with time attributes (N, M, ct, ∞) are reflected in the SUTXO account.
There are two sources of balance (Unspent Transaction Output) in the SUTXO account:
1) From some or all of the assets held by the user’s own Account. When this part of the assets is transferred into the SUTXO account system, the same type and quantity of digital assets will be subtracted from the Account account, thereby ensuring the validity of the initial source of SUTXO in the entire system.
This implementation process has the following features:
- Users can only initiate transfer from their own Account account to their own SUTXO account;
- The transfer process is performed atomically.
From the above point of view, this realizes the use of the user’s own digital assets as an endorsement to generate the usage right and future ownership of the assets held.
2) Another method of acquisition is the transfer of other users’ SUTXO, which is equivalent to the user, as a recipient, receiving the usage right or future ownership.
FUSION’s SUTXO uses an unstructured structure similar to the balance (Unspent Transaction Output) of the existing UTXO, but it extends the original UTXO recording parameters by adding two parameters of times, T1 and T2, to support the (N, M, T1, T2) model.
Time Lock split operation
1) User A initiates a transfer operation from his/her own Account account to SUTXO regarding the present digital assets (N, M) in the current Account account, and passes in a parameter P, p is the value of P, and satisfies condition: ct<p<∞,
2) Deduct the corresponding digital asset (N, M) in User A’s Account, form a (N, M, ct, ∞) record in SUTXO, and execute it, according to the incoming parameter P=p
（N，M，ct，∞）à p =（N，M，ct，p）+（N，M，p+1，∞）
Thus, user A obtains a right to use the digital asset (N, M) for the time period [ct, p] and future ownership of the digital asset (N, M) at the future time point p+1.
User A can transfer the formed (N, M, ct, p) and (N, M, p+1, ∞) to SUTXO accounts of different users respectively.
During the period when User A transfers (N, M, p+1, ∞) to User B, User B obtains a future ownership of digital assets (N, M) at time point p+1, and User A will lose ownership of this part of the assets.
At the same time, FUSION will expand the smart contract on FUSION to implement support for SUTXO’s account system to achieve further definition and programming of future value streams.
Time attribute determination for SUTXO
When user B gets a (N, M, p+1, ∞), he can choose to wait till the condition (ct≥p+1) is met, and he can directly obtain ownership about (N, M).
Or, user B may seek to obtain a usage right of (N, M) for [T1, T2] = [ct, t’]，as long as, user B obtains t’≥p, user B can obtain current ownership of digital assets (N,M), through,
Similarly, the user can obtain a plurality of [T1, T2] usage rights with respect to (N, M), as long as the time period [ct, p] is covered to get the current usage right for (N, M).
The SUTXO time attribute is determined by means of a filter for SUTXO time attribute. This filter determines whether the SUTXO time parameter satisfies the continuity of the target digital asset (N, M) over the period [ct, ∞]. When the conditions are met, the SUTXO with the time attribute is converted into the standard UTXO for operation.
Time Lock splicing operation
1) User A selects a SUTXO segment on digital assets (N, M) that satisfies [ct, ∞] on the relevant time period in his/her own SUTXO account, and executes
(N, M, t, t’) + (N, M, t’+1, ∞) = (N, M, t, ∞)
2) Simultaneously eliminate the associated SUTXO record in User A’s SUTXO record (e.g. by the way of locking into a special destination address), and add (N, M) records in User A’s Accout account.
This operation also needs to meet the following two requirements:
- Users can only perform Time Lock splicing operation in their own SUTXO and Account accounts;
- The above operation is conducted atomically.
Thanks FUSIONites for reading, we have this article gave you a more in depth understanding of the FUSION ‘Time Lock’ innovation.