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 49
OP 57
DO 10.3905/jot.2018.13.4.049
VO 13
IS 4
A1 Rune Tevasvold Aune
A1 Adam Krellenstein
A1 Maureen O’Hara
A1 Ouziel Slama
YR 2018
UL https://pm-research.com/content/13/4/49.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, legal/regulatory/public policy