Local Protocol Blockchain

At the core of the Local Blockchain is a bipartite graph that captures the economic relationships between producers and buyers, with edges representing the transaction history between the pair. Producers and buyers are represented as nodes (or vertices), and each transaction between a buyer and a producer adds a weighted edge to the graph.

How It Works#

• The transaction graph is dynamic: As transactions occur, the graph evolves.
• The graph captures not only the volume of transactions but also the connectivity within the network.
• This approach rewards participants based on the value they contribute, not just their transaction volume.

The graph measures a participant's contribution by how much connectivity they add, using metrics like eigenvector centrality (EC). EC is a recursive measure that assigns more weight to nodes that are connected to other well-connected nodes, making it difficult to boost one’s score through fake transactions.

Key Features of the Transaction Graph#

Aligning Incentives#

The transaction graph optimizes incentives by:

• Aligning token distributions with network growth.
• Resisting manipulation and Sybil attacks.
• Dynamically adapting to changing market conditions.
• Rewarding behaviors that enhance network effects.

Security Mechanisms#

The graph also serves as a security mechanism, as each node acts in its self-interest to maximize personal rewards. This creates a network that is robust against adversarial threats, incentivizing real transactions and discouraging fake ones.

Adding Proofs#

The transaction graph enables trust propagation across the network, even in markets where complete proofs of service are not available. This is achieved by treating service verification as a probability density function rather than a binary outcome, allowing the network to assign trust dynamically based on transaction history and graph connectivity.

Next Steps#

In the next sections, we'll explore more technical aspects of the transaction graph and dive deeper into its interaction with the Local Protocol's tokenomics. The transaction graph is not only a tool for measuring value but also the foundational infrastructure for building adaptive and secure decentralized markets.