Microledger Protocol: Bank-Anchored State Channels Specification

Complete technical specification for bilateral transaction ledgers with institutional trust

System Architecture

Core Components

1. Identity Registry

• Purpose: Maintains trust-on-first-use mapping of entity names to public keys
• Trust Model: Centralized registry prevents identity spoofing
• Registration: Entities register with timestamp + signature proof of key ownership

2. Bank Service

• Purpose: Provides escrow commitments and settlement services
• Escrow Creation: Locks specific funds for dedicated bilateral Microledgers
• Commitment Signing: Creates cryptographic guarantees preventing double-spending
• Settlement Processing: Handles final Microledger closure and fund distribution

3. Microledger Protocol

• Genesis: Microledger establishment with bank commitment
• Transactions: Bilateral P2P transaction execution
• Settlement: Cooperative or unilateral Microledger closure

Block Specifications

Base Block Structure

interface Block {
  blockNumber: number;                    // Sequential, starts at 1
  blockType: "genesis" | "transaction" | "settlement";
  previousBlockHash?: string;             // null for genesis block
  digitalFingerprint: string;             // SHA-256 of canonical representation
  timeImprint: string;                    // ISO-8601 timestamp
  controllingIdentifiers: string[];       // Both party IDs
  signatures: Signature[];               // Signatures from all controlling parties
}

interface Signature {
  algorithm: "RSA" | "ECDSA" | "Ed25519";
  publicKeyId: string;                   // Reference to signing party
  value: string;                         // Base64-encoded signature
}

Genesis Block

Establishes the bilateral Microledger with dedicated bank commitment.

interface GenesisBlock extends Block {
  blockType: "genesis";
  bankCommitment: {
    bank: string;                        // Bank identifier
    escrowId: string;                    // Unique escrow reference
    dedicatedAmount: number;             // Amount locked for this Microledger
    channelId: string;                   // Unique Microledger identifier
    expiration: string;                  // ISO-8601 expiration timestamp
    bankSignature: string;               // Bank's cryptographic commitment
  };
}

Example:

{
  "blockNumber": 1,
  "blockType": "genesis",
  "digitalFingerprint": "sha256:abc123...",
  "timeImprint": "2024-08-22T10:30:00Z",
  "controllingIdentifiers": ["agent-123", "weather-api"],
  "bankCommitment": {
    "bank": "first-national-bank",
    "escrowId": "escrow-xyz789",
    "dedicatedAmount": 100.00,
    "channelId": "channel-agent123-weather",
    "expiration": "2024-08-29T10:30:00Z",
    "bankSignature": "eyJhbGciOiJSUzI1NiIsInR5cCI6IkpXVCJ9..."
  },
  "signatures": [
    {
      "algorithm": "RSA",
      "publicKeyId": "agent-123",
      "value": "dGVzdCBzaWduYXR1cmUgZm9yIGFnZW50"
    },
    {
      "algorithm": "RSA", 
      "publicKeyId": "weather-api",
      "value": "dGVzdCBzaWduYXR1cmUgZm9yIHdlYXRoZXI="
    }
  ]
}

Transaction Block

Records individual peer-to-peer transactions within the Microledger.

interface TransactionBlock extends Block {
  blockType: "transaction";
  previousBlockHash: string;             // Required for transaction blocks
  transaction: {
    from: string;                        // Payer identifier
    to: string;                          // Payee identifier
    amount: number;                      // Transaction amount
    currency: string;                    // Currency code (USD, EUR, etc.)
    service?: string;                    // Service identifier
    metadata?: Record;      // Additional transaction data
  };
}

Example:

{
  "blockNumber": 5,
  "blockType": "transaction",
  "previousBlockHash": "sha256:def456...",
  "digitalFingerprint": "sha256:ghi789...",
  "timeImprint": "2024-08-22T11:45:30Z",
  "controllingIdentifiers": ["agent-123", "weather-api"],
  "transaction": {
    "from": "agent-123",
    "to": "weather-api",
    "amount": 0.05,
    "currency": "USD",
    "service": "current_weather",
    "metadata": {
      "location": "New York",
      "units": "metric",
      "requestId": "req_abc123"
    }
  },
  "signatures": [
    {
      "algorithm": "RSA",
      "publicKeyId": "agent-123",
      "value": "YWdlbnQgc2lnbmF0dXJlIGZvciB0cmFuc2FjdGlvbg=="
    },
    {
      "algorithm": "RSA",
      "publicKeyId": "weather-api", 
      "value": "d2VhdGhlciBzaWduYXR1cmUgZm9yIHRyYW5zYWN0aW9u"
    }
  ]
}

Settlement Block

Final Microledger closure and balance reconciliation.

interface SettlementBlock extends Block {
  blockType: "settlement";
  previousBlockHash: string;
  channelSummary: {
    totalTransactions: number;           // Count of transaction blocks
    totalAmount: number;                 // Sum of all transactions
    finalBalance: Record; // Final balance per party
    settlementMethod: "cooperative" | "unilateral" | "expired";
    settlementReason?: string;           // Optional closure reason
  };
}

Example:

{
  "blockNumber": 42,
  "blockType": "settlement",
  "previousBlockHash": "sha256:jkl012...",
  "digitalFingerprint": "sha256:mno345...",
  "timeImprint": "2024-08-22T16:00:00Z", 
  "controllingIdentifiers": ["agent-123", "weather-api"],
  "channelSummary": {
    "totalTransactions": 40,
    "totalAmount": 12.50,
    "finalBalance": {
      "agent-123": 87.50,
      "weather-api": 12.50
    },
    "settlementMethod": "cooperative",
    "settlementReason": "Planned channel closure"
  },
  "signatures": [
    {
      "algorithm": "RSA",
      "publicKeyId": "agent-123", 
      "value": "ZmluYWwgYWdlbnQgc2lnbmF0dXJlIGZvciBzZXR0bGVtZW50"
    },
    {
      "algorithm": "RSA",
      "publicKeyId": "weather-api",
      "value": "ZmluYWwgd2VhdGhlciBzaWduYXR1cmUgZm9yIHNldHRsZW1lbnQ="
    }
  ]
}

Protocol Flow

1. Microledger Establishment

Step 1: Identity Registration

POST /identities/agent-123
X-Signature: <timestamp-signature>

{
  "timestamp": "2024-08-22T10:00:00Z",
  "publicKey": "-----BEGIN PUBLIC KEY-----\nMIIBIjANBgkqhkiG9w0BAQEFAAOCAQ8AMIIBCgKCAQEA..."
}

Step 2: Escrow Creation

POST /customers/agent-123/escrow
X-Signature: <request-signature>

{
  "recipient": "weather-api",
  "amount": 100.00,
  "activeDurationInSeconds": 604800,  // 7 days
  "expirationInSeconds": 86400        // 1 day grace period
}

Response includes X-Proof-of-Funds header with bank commitment.

Step 3: Genesis Block Creation

Both parties co-sign genesis block referencing the bank commitment.

2. Transaction Execution

Step 1: Service Request with State Update

GET /weather/current?location=NYC
X-State-Channel-Block: <base64-encoded-transaction-block>
X-Channel-ID: channel-agent123-weather

The X-State-Channel-Block contains the signed transaction block that both parties have agreed upon.

Step 2: Service Response with Acknowledgment

HTTP/1.1 200 OK
X-State-Channel-Ack: <base64-encoded-counter-signature>
X-Channel-Balance: 99.95

{
  "temperature": 22,
  "condition": "sunny",
  "humidity": 65
}

3. Microledger Settlement

Cooperative Closure

Both parties agree on final state and co-sign settlement block:

POST /channels/channel-agent123-weather/settle
X-State-Channel-Block: <base64-encoded-settlement-block>

{
  "method": "cooperative",
  "finalBalance": {
    "agent-123": 87.50,
    "weather-api": 12.50
  }
}

Cryptographic Specifications

Hash Function

• Algorithm: SHA-256 (required for all implementations)
• Canonical Representation: JSON with sorted keys, no whitespace for hash computation
• Encoding: Hex string (lowercase)

Digital Signatures

• Supported Algorithms: RSA (RSASSA-PKCS1-v1_5), ECDSA (secp256k1), Ed25519
• Message: SHA-256 hash of the block's digital fingerprint
• Encoding: Base64

Public Key Formats

• RSA: PEM format (PKCS#1 or PKCS#8)
• ECDSA: PEM format with explicit curve parameters
• Ed25519: PEM format as specified in RFC 8410

Data Encoding

• JSON: Required for human readability, documentation, and interoperability testing
• CBOR: Optional for production efficiency and bandwidth optimization
• Hash Computation: Always use canonical JSON representation regardless of transport encoding
• Backward Compatibility: All implementations must support JSON; CBOR support is optional

Key Features

• Bilateral Architecture: Private transaction channels between two parties
• Cryptographic Integrity: All transactions cryptographically signed and linked
• Independent Settlement: Each party settles with chosen financial institution
• Energy Efficient: 99.9% less energy than traditional blockchain

Security Considerations

Double-Spending Prevention

• Each bank commitment is unique to one bilateral Microledger
• Bank validates that escrow funds haven't been committed elsewhere
• Microledger ID prevents replay attacks across different Microledgers

Signature Verification

• All blocks must be signed by both controlling parties
• Bank commitments must be verified against bank's public key
• Invalid signatures result in Microledger closure

Dispute Resolution

• Complete Microledger history provides cryptographic audit trail
• Banks can verify final state from transaction sequence
• Unilateral closure possible if one party becomes unresponsive

Privacy Protection

• Transaction details only visible to Microledger participants
• Banks only see escrow commitments and final settlements
• No global broadcast of transaction history

Implementation Requirements

Mandatory Features

1. Block Validation: Verify signatures and hash integrity
2. State Synchronization: Both parties maintain identical Microledger state
3. Commitment Verification: Validate bank commitments before Microledger creation
4. Settlement Processing: Handle cooperative and unilateral closures

Optional Features

1. Automatic Reconciliation: Periodic state synchronization checks
2. Backup and Recovery: Microledger state backup mechanisms
3. Monitoring and Alerts: Balance and expiration notifications
4. Batch Processing: Multiple transactions in single block

Error Handling

• Invalid Signature: Reject block and maintain previous state
• State Mismatch: Initiate reconciliation protocol
• Expired Commitment: Automatic Microledger closure
• Bank Unavailable: Queue settlement until bank accessible

Testing Framework

Unit Tests

• Block creation and validation
• Signature generation and verification
• Hash computation and verification
• Microledger state updates

Integration Tests

• End-to-end Microledger lifecycle
• Multi-party signature coordination
• Bank commitment validation
• Settlement processing

Load Tests

• High-frequency transaction processing
• Multiple concurrent Microledgers
• Large transaction history handling
• Memory and CPU usage optimization

This specification provides the foundation for implementing the Microledger protocol through bank-anchored state channels that enable secure, efficient peer-to-peer transactions with institutional trust backing.