How does the Credit Protocol deal with enforcing debts?

Jared Bowie

TL;DR:

  • Many of our fans and users are wondering about how the Credit Protocol deals with debt enforcement.
  • The Credit Protocol is a base platform that enables third parties to build lending apps.
  • The “Trust” and “Enforcement” are functions of the apps built on top of the Credit Protocol.
  • Similar to how we trust Amazon delivery — which is built on top of a base protocol (HTTP).

Summary Detail:
How are debts enforced on the Credit Protocol? We get this question often.

Actually, the Credit Protocol (CP) is the base mechanism that enables other parties to build functional and trusted dApps (decentralized apps) on top of its core abilities. The function of the CP is to build the train tracks — so you (and others) can build the dApps that run on top of it.

The elements of trust, security, and enforcement will vary with the types of debts. For a lunch between friends it will be different than a car loan or a home mortgage. For a pair of concert tickets between strangers, different measures are needed than taking out a college loan. For this reason, various dApps built on top of the Credit Protocol will have their own enforcement mechanisms, and marketed to consumers and lenders as such.

More / Technical Detail:
The Credit Protocol is a protocol that stores credits and debts on the blockchain between two parties. These debts are stored with a memo indicating the reason for them. In order for these debts to occur, both parties need to cryptographically authorize the debt and credit. Notice until now we’ve said nothing about what kind of debt is stored, what currency the debts are in, what kind of debt it is, how large the debt is or what types of entities the debts are between. That’s because this type of information is separate from the protocol.

The idea behind protocols is that they are simple and broad. One of the most common and well known protocols http (Hypertext Transfer Protocol) performs the simple and broad task of enabling data to be transmitted for the world wide web. Notice that it doesn’t say how you can guarantee Amazon will actually ship you a book after you paid for it online. Other entities are responsible for building Amazon, other entities are responsible for the payment systems enabling online purchases through Amazon, other entities are responsible for the law enforcement should Amazon decide to take your money, but never deliver the product.

The Credit Protocol functions in a very similar way. It allows dApps to be built on it and hooked in through UCACs (use case authority contracts), but those dApps are not controlled nor governed by the Credit Protocol. Through those dApps different businesses can build their own debt or credit businesses, or fun projects and it’s up to these businesses and the laws governing them to figure out enforcement when someone doesn’t pay their debts.

For example, if a bank started using the Credit Protocol to record debts it gives out, because of the reliability of the blockchain, that bank would still use the same mechanisms it does today to enforce that debt. On the other hand, if the bank started doing cryptocurrency collateralization, it would still be subject to the same lending laws it is today, but would be able to enforce debt non-payment by seizing those cryptocurrency assets used as collateral (within the specific laws of the jurisdiction of the bank).

None of this enforcement specifically involves the Credit Protocol. All enforcement is done by the businesses built atop the Credit Protocol and they are subject to the same regulations as other lending businesses.

//Blockmason Team