⚖️ Dispute Resolution: On-Chain Arbitration
Learn how disputes are settled when parties disagree
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0 / 5 completedDispute Resolution: Protecting Against Cheating
Understand how state channels prevent fraud through cryptographic proofs and challenge periods, ensuring honest behavior even when parties don't trust each other.
⚠️ The Cheating Problem
Since state channels involve off-chain transactions, what prevents a dishonest party from submitting an old, favorable state when closing the channel? For example, if Alice paid Bob $50 over time (changing balances from 100/100 to 150/50), Bob might try to close the channel with the original 100/100 state to steal $50.
💡 The Solution: Dispute resolution mechanisms use sequence numbers, digital signatures, and challenge periods to ensure only the latest valid state can be enforced.
🎮 Dispute Resolution Simulator
Step through a fraud attempt and see how the dispute mechanism protects the honest party. Navigate at your own pace to understand the security guarantees.
Normal Closure
Step 1/4Bob submits correct final state (Alice: $150, Bob: $50)
Current State Details:
🔐 Security Mechanisms
Sequence Numbers
Each state update has an incrementing nonce. The contract always accepts the state with the highest valid sequence number, making old states provably outdated.
Dual Signatures
Every valid state must be signed by both parties. A dishonest party can't forge the other's signature, providing cryptographic proof of agreement.
Challenge Period
After submitting a closing state, there's a waiting period (typically 24 hours) during which the other party can challenge with a newer state.
Economic Penalties
Attempting fraud can result in slashing of the dishonest party's deposit, creating strong economic disincentives against cheating.
⚡ Challenge Period Trade-offs
The challenge period is crucial for security but creates a trade-off between safety and speed:
Longer Period (7-14 days)
- ✓More time to detect and challenge fraud
- ✓Accommodates offline participants
- ✗Slower fund withdrawal
Shorter Period (1-24 hours)
- ✓Faster fund withdrawal
- ✓Better user experience
- ✗Less time to detect fraud
🎯 Best Practices for Users
Monitor Channel Activity
Watch for closure attempts during the challenge period. Services like "watchtowers" can do this automatically for you.
Keep State Backups
Store all signed state updates locally. You'll need the latest one to challenge fraudulent closure attempts.
Enable Notifications
Set up alerts for channel events, especially closure attempts, so you can respond quickly during the challenge period.
Use Watchtower Services
Delegate monitoring to specialized services that watch the blockchain 24/7 and automatically challenge fraud on your behalf.