Offset Credit is an extension of a mutual credit system.
Credit is created between trusted parties, such as friends A and B. As with a mutual credit system, each party chooses a credit limit to extend to the other and may therefore go about trade directly between one another.
Offset Credit also allows transfer of credit between anonymous or otherwise untrusted parties, such as A and C. This occurs so long as there is connected graph between A and C that extends sufficient credit to allow the transfer to occur.
For example, suppose B and C have extended credit to one another, and suppose this credit limit is $50. Then A can transfer credit to C by first borrowing the $50 from B, who in turn borrows from C. If a single path in the graph is insufficient to allow for the transfer, then multiple paths may be used.
Pictorially, the intial condition is such:
A -100 <----x----> 100 B -50 <----x----> 50 C (0) (0) (0)
And then after:
A -100 <------x--> 100 B -50 <------x--> 50 C (-50) (0) (+50)
In the process, the debt owed by B does not change, what changes is to whom B now owes the debt. As an intermediary node, B is allowed to charge a fee for this role.
The unique aspect of Offset Credit is that the path(s) in the credit graph are discovered algorithmically and the transaction occurs atomically. It does this using a network topology consisting of nodes (individual accounts or cards) and index servers (as well as relay servers which are used to connect directly between nodes). A node is configured to speak to one or more index servers. The index servers, of which there may be multiple in federation, store the whole picture of each child node and are responsible for discovering the cheapest paths between disparate nodes using classical graph theory algorithms. When a path or paths are indentified, the transaction occurs atomically across all affected nodes; if a transaction is interrupted or otherwise cannot be completed, the entire transaction is rolled back.
Offset credit is a fiat currency, constructed through the universal extension of credit to one another.
Last updated 2020-07-18