RT Journal Article
SR Electronic
T1 Footprints on a Blockchain: <em>Trading and Information Leakage in Distributed Ledgers</em>
JF The Journal of Trading
FD Institutional Investor Journals
SP 5
OP 13
DO 10.3905/jot.2017.12.3.005
VO 12
IS 3
A1 Aune, Rune Tevasvold
A1 Krellenstein, Adam
A1 O’Hara, Maureen
A1 Slama, Ouziel
YR 2017
UL http://jot.pm-research.com/content/12/3/5.abstract
AB This article examines information leakage when trading in distributed ledgers. We show how the lack of time priority in the period between the publication of a transaction and its validation by miners or designated participants can expose a transaction’s footprint to the market, resulting in potential front-running and manipulation. We propose a cryptographic approach for solving information leakage problems in distributed ledgers that relies on using a hash (or fingerprint) to secure time priority, followed by a second communication that reveals more features of the underlying market transaction—in effect using a transaction’s fingerprint to hide its footprint. Solving the information leakage problem greatly expands the potential applications of private distributed ledger technology to include trading.TOPICS: Quantitative methods, exchanges/markets/clearinghouses