TNT – A Trustless Yet Permissioned Blockchain
By Joseph Mark Haykov, with Nathan, and Phillip as interns
Abstract
TNT is a distributed database engineered to operate across multiple independently owned and managed peer-to-peer nodes (servers connected via the internet). While TNT mirrors the core functionalities of other blockchain-based distributed databases, such as Bitcoin's proof-of-work and Ethereum's proof-of-stake systems, it distinguishes itself through a patent-pending payment processing system. This system significantly enhances transaction efficiency, enabling faster and more cost-effective payments. Additionally, TNT’s unique architecture offers an advanced level of security and supports both fully permissionless and permissioned modes, facilitating compliance with Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations.
Permissionless and Permissioned Blockchains in Decentralized Finance
In decentralized finance (DeFi), the term "permissionless" describes a system in which individuals can participate in a peer-to-peer network without needing approval from any intermediary. Cryptocurrencies like Bitcoin and Ethereum embody this concept, allowing anyone to spend funds—referred to as “coins”—and execute smart contracts autonomously. This decentralized model removes the need for third-party intervention, fostering a truly trustless environment.
Permissionless, proof-of-work cryptocurrencies like Bitcoin carry no counterparty risk, provided the network avoids major compromises, such as a 51% attack. This characteristic makes them comparable to physical assets like gold, silver, or cash, which also carry no counterparty risk because using dollar bills or gold coins for payment requires no external party’s permission, eliminating the need for a third-party intermediary. This contrasts sharply with transactions relying on banks, such as checks or wire transfers, where multiple institutions must authorize the transaction, each adding layers of risk.
In contrast, permissioned blockchains operate under a central authority, similar to traditional databases, with administrators controlling who can join and transact. Technologies like DRBD® often support these systems by ensuring high availability and mirroring data across servers. However, these systems inherently rely on intermediaries, introducing counterparty risk due to the central administrator's control over data access and transactions. Unlike permissionless blockchains, permissioned blockchains cannot operate autonomously, free from central oversight. Consequently, permissioned systems lack the trustlessness essential in DeFi, introducing inherent and unavoidable risks similar to those in commercial banking.
Due to their reliance on centralized control, permissioned blockchains lack the qualities essential for decentralized finance. They carry the same counterparty risks as traditional financial institutions. In DeFi, a blockchain without trustless, decentralized operation holds no value as a tradable asset that mitigates default risk. Thus, permissioned blockchains are fundamentally misaligned with DeFi’s goals and offer no value in decentralized markets, where risk mitigation and autonomy are foundational to Bitcoin's trillion-dollar market valuation.
TNT: The Trustless, Permissioned Blockchain Built for Modern Transactions
At first glance, a “trustless, permissioned” blockchain may seem paradoxical. Doesn’t requiring permission from potentially untrustworthy third parties contradict the principle of trustlessness? Surprisingly, the answer is no. While permissionless blockchains like Bitcoin and Ethereum allow trustless transactions, they lack the control necessary for many real-world exchanges of goods and services. TNT addresses this gap by merging the autonomy of trustless transactions with the structure of a permissioned system.
To appreciate TNT’s potential, let’s revisit the fundamental purpose of money. In 1871, economist William Stanley Jevons described money as a medium of exchange, resolving the “double coincidence of wants” problem inherent in barter. Transactions are inherently two-sided—when you pay, you expect to receive something in return. TNT’s approach aligns with this principle: by requiring consent from both the sender and recipient, TNT ensures that all transactions are voluntary, with each party agreeing to the terms of the exchange.
In contrast, Bitcoin and Ethereum operate as “push-payment” systems: funds are sent without the recipient's consent, and once confirmed, they automatically land in the recipient’s wallet—wanted or not. This system opens the door to spam and even malicious tokens. For example, BlackRock’s Ethereum wallet was once flooded with unsolicited “shit” tokens. TNT directly tackles this issue by functioning exactly like real-world money, such as gold, cash, or checks. In TNT’s system, no transaction is finalized until both the sender and recipient agree to it. Just as a merchant can refuse cash or tear up a check, TNT users can accept or reject incoming transactions, preserving control over their wallets.
This feature is essential for smooth, voluntary exchanges—a core concept in economic principles like the Arrow-Debreu model. Receiving money without agreeing to provide something in return disrupts the flow of free trade, creating involuntary exchanges. For instance, if an individual unknowingly receives $10 million in Bitcoin from an Iranian national, it could lead to serious legal consequences—even if the deposit was unsolicited. TNT resolves this by ensuring mutual agreement for each transaction, protecting users from unsolicited payments and making the exchange process more secure and efficient.
Bitcoin and Ethereum lack this level of control. As Charlie Munger famously criticized, Bitcoin is a “turd” due to such limitations. In addition to enabling involuntary exchanges, Bitcoin generates substantial negative externalities, consuming more electricity annually than Argentina and serving as a popular method for facilitating ransomware payments. It’s no wonder that savvy investors like Munger often compare Bitcoin conferences to “sewer conventions.”
TNT overcomes these issues. By requiring recipient consent for every transaction, TNT protects users from spam and ensures that each exchange is voluntary—unlike traditional push-payment systems. Furthermore, TNT is eco-friendly, avoiding the significant energy consumption associated with proof-of-work blockchains. With TNT, you gain a secure, efficient, and responsible payment solution designed for the modern economy.
Why Bitcoin is Indeed a “Turd”
The reason Bitcoin is fundamentally flawed stems from what is known as "theory-induced blindness." Once a theory gains widespread acceptance, people often overlook its limitations—a phenomenon brilliantly explained by Nobel Prize-winning psychologist Daniel Kahneman in Thinking, Fast and Slow (2011). In the case of Bitcoin’s proof-of-work blockchain, Satoshi Nakamoto’s 2008 design solved one problem—double spending—but left a deeper issue unresolved: imperfect information. Nakamoto’s approach addressed the symptom (double spending) rather than the root cause (imperfect information), a significant oversight that has affected all subsequent blockchain systems and led to inherent vulnerabilities.
In Bitcoin, double spending—a form of fraud—occurs due to imperfect information about pending payments. When a transaction is made, it doesn’t instantly reach every node in the network. There’s a lag, sometimes only fractions of a second, during which certain nodes remain unaware of the transaction. This brief period creates an opportunity for the spender to initiate a second, conflicting transaction elsewhere in the network, leading to double spending. In this setup, some nodes have more up-to-date information about the blockchain’s state than others. As we see, the root issue isn’t double spending itself but rather that nodes don’t receive the same information simultaneously across the network.
This is where TNT (Transparent-Network Technology) provides a breakthrough. TNT addresses imperfect information across all nodes by using batch processing to synchronize updates across the network. Rather than processing transactions continuously under imperfect information, TNT processes transactions at fixed intervals, ensuring that all nodes receive the exact same information simultaneously. This way, everyone in the network receives a complete update at once, closing the informational gaps that enable double spending.
By eliminating those brief moments when some nodes might be “in the dark,” TNT effectively removes the conditions that allow double spending to occur. With synchronized data across all nodes, no participant holds an informational advantage. This transparency addresses double spending at its root by eliminating the underlying cause: imperfect information. While traditional blockchains like Bitcoin and Ethereum focus on detecting and preventing double spending by “bribing” payment processors, TNT goes further by removing the conditions that make double spending possible. This distinction is what makes TNT revolutionary: it doesn’t merely address the symptom (double spending); it tackles the foundational issue that has challenged blockchains for years—imperfect information.
In short, while Nakamoto’s 2008 design was groundbreaking, it didn’t correctly identify the core issue in decentralized payments: strategic uncertainty due to imperfect information, not simply the fraud that arises from it. TNT’s innovation lies in addressing the deeper challenge of information asymmetry, elevating blockchain technology to a new level of security and efficiency.
TNT: An Honest, Pareto-efficient Nash Equilibrium
In the cryptocurrency space, the goal is to achieve a Nash equilibrium where honesty becomes the dominant strategy. This means no player would have an incentive to cheat, as there would be no way to profit from dishonest behavior if all other players remain honest. Let’s define this formally within TNT’s system.
In cryptocurrency terms, a “player” is defined as any individual who:
Uses coins as a medium of exchange (spending/receiving coins).
Uses coins as a store of value (holding coins in a wallet).
Thus, a “player” is simply a cryptocurrency wallet holder (e.g., a Bitcoin wallet owner) who either has funds or can receive funds.
How TNT Establishes a Pareto-efficient Nash Equilibrium
TNT creates a group-optimal (Pareto-efficient) Nash equilibrium in blockchain interactions. Specifically, this equilibrium ensures that no player can improve their outcome by deviating from honest, group-optimal behavior to fraudulent actions, as long as all other players remain honest.
In game theory, a Nash equilibrium represents a state in which no player can benefit by changing their strategy unilaterally, assuming the strategies of others remain unchanged. This equilibrium ensures strategic stability for each individual player. However, a Nash equilibrium does not guarantee that the outcome is optimal for the group as a whole—this is where Pareto efficiency comes in.
A Pareto-efficient outcome maximizes collective welfare. In such an outcome, no player can be made better off without making another player worse off. This concept focuses on ensuring all potential mutual gains are realized, though it does not address fairness or equity in terms of distribution. Achieving Pareto efficiency in cryptocurrency systems doesn’t require “fairness” per se, but rather that fraudulent actions (e.g., double spending) are rendered unprofitable or impossible. For instance, spending a Bitcoin without the necessary private key is “provably difficult” in practice, which upholds honest behavior as a stable strategy.
Rational Utility and Strategic Stability in TNT
In mathematical economics, which shares game theory’s foundational principle of rational utility maximization, a Nash equilibrium arises when rational players interact strategically, each aiming to maximize utility. The equilibrium condition states that “no player can benefit by unilaterally changing their strategy, assuming others keep theirs unchanged.” This assures strategic stability at the individual level, but does not inherently optimize collective outcomes.
TNT’s system goes further by achieving both individual stability (Nash equilibrium) and collective optimality (Pareto efficiency). By creating conditions that make dishonest actions unprofitable, TNT ensures that honest behavior is not only stable but also beneficial for the group as a whole. This design creates a blockchain system where honesty is the most rational and rewarding choice for all participants.
In summary, while traditional blockchains like Bitcoin focus primarily on achieving individual-level stability through a Nash equilibrium, TNT advances the system by ensuring honesty as the dominant strategy at both the individual and collective levels. By establishing a Pareto-efficient Nash equilibrium, TNT fosters a system where honest behavior becomes the most efficient, beneficial, and rational strategy for all players.
Cause-and-Effect: How Imperfect Information Leads to Pareto Inefficiency
In both economic theory and real-world markets, imperfect information creates a barrier to achieving Pareto-efficient outcomes. George Akerlof’s seminal work, The Market for "Lemons," illustrates how asymmetric information can lead to significant inefficiencies. In Akerlof’s example, used car sellers often have more information about vehicle quality than buyers do. This information asymmetry results in a market dominated by low-quality "lemons," as buyers, unable to accurately assess quality, are unwilling to pay premium prices. Consequently, high-quality cars are driven out of the market, leading to Pareto inefficiency as mutually beneficial transactions are lost and resources are misallocated.
A deeper issue arises in what we call the Rent-Seeking Lemma, closely tied to opportunistic behavior or rent-seeking, as developed in public choice theory by Gordon Tullock and James Buchanan (awarded the 1986 Nobel Prize). Rent-seeking describes a form of economic inefficiency in which agents attempt to increase wealth without creating new value, often by manipulating existing resources. This concept links to the principal-agent problem, where the agent (here, the seller) holds more information than the principal (the buyer) and exploits this imbalance. For instance, a seller may misrepresent a low-quality car as high-quality, extracting unearned wealth from the buyer. In Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure (1976), Jensen and Meckling highlight how self-interest and variable honesty among economic agents can undermine optimal market function, reflecting the "opportunistic nature of man." This predictable exploitation of information asymmetry erodes trust and contributes to market inefficiency.
In markets plagued by imperfect information, economic "parasites"—a term originally used by Vladimir Lenin to describe individuals who consume goods and services without contributing to their creation—exploit these asymmetries without adding value. In public choice theory, rent-seekers behave similarly, extracting wealth through manipulation rather than productive activity. Dishonest players, such as used car dealers who misrepresent vehicle quality, systematically extract unearned wealth in the form of economic rents from uninformed buyers. This dynamic not only incentivizes dishonest behavior but also drives out honest players, further compounding inefficiencies.
The lack of verification mechanisms—such as CarFax reports—enables the informed party (the seller) to take advantage of the uninformed party (the buyer), leading to failures in achieving efficient outcomes. This results in adverse selection and long-term welfare reduction for both parties, violating Pareto efficiency.
A similar issue occurs in the Prisoner’s Dilemma in game theory, where inefficiency arises from strategic uncertainty rather than asymmetric information. In the classic dilemma, each prisoner is uncertain about the other’s decision, which prevents cooperation, despite mutual cooperation yielding better outcomes for both. Without trust, both prisoners rationally defect to avoid the worst-case scenario (being betrayed while cooperating). This strategic uncertainty leads to a Nash equilibrium where both players defect, resulting in a Pareto-inefficient outcome. If the prisoners were fully informed of each other’s strategies, they could achieve a Pareto-efficient outcome by cooperating.
In both cases—whether dealing with asymmetric information in markets or strategic uncertainty in the Prisoner’s Dilemma—imperfect information prevents participants from making fully informed decisions, which leads to outcomes that are not Pareto-efficient. When information is complete and transparent, individuals can coordinate effectively, achieving outcomes where no one can be made better off without making someone else worse off—a hallmark of Pareto efficiency.
This principle is well-established in economic theory and observed empirically. In markets with greater transparency, efficiency improves as buyers and sellers make informed decisions using tools like CarFax reports. Similarly, in game-theoretic settings, mechanisms that reduce strategic uncertainty can foster cooperation, leading to more efficient outcomes. For instance, within criminal organizations like the Mexican mafia, the punishment of informants ("rats") mitigates strategic uncertainty. Co-conspirators are unlikely to betray each other due to the threat of retribution against their families, reducing information imperfections, facilitating cooperation, and ensuring group stability—creating a form of group-optimal Pareto efficiency where no member has an incentive to deviate.
However, this type of enforced cooperation does not yield a socially optimal outcome for society as a whole. The First Welfare Theorem, rooted in the Arrow-Debreu framework, asserts that competitive markets with voluntary exchanges lead to Pareto-efficient outcomes that maximize overall welfare. In contrast, the mafia’s enforcement mechanisms rely on coercion and involuntary exchanges, which diminish societal welfare. Only unfettered trade is mutually beneficial, and coerced exchange is neither mutually beneficial nor Pareto-improving. While the mafia may achieve internal stability, their activities—often in illegal markets—create externalities that harm societal welfare, failing to meet the conditions necessary for true Pareto efficiency as defined by economic theory.
TNT: Transparency Guarantees Pareto-Efficient Honesty
TNT achieves a group-optimal Nash equilibrium by eliminating information imperfections related to pending payments through Transparent-Network Technology (TNT). This transparency makes honest behavior the optimal choice, provided that all participants also act honestly. Mathematically, in TNT’s Nash equilibrium, honest participation maximizes individual payoffs, while attempts at fraud result in penalties and reduced returns due to built-in detection mechanisms. In other words, attempting fraud on the TNT network is like trying to pass a counterfeit coin to expert jewelers: every participant can independently verify authenticity, not only ignoring fraudulent attempts but potentially penalizing the perpetrator, making honesty the rational choice. Fraud is detected swiftly and penalized.
Here’s how TNT establishes this Nash equilibrium technically: all network nodes operate with fully transparent, symmetric information. Whether a participant is holding a wallet or running a TNT-Bank node, everyone has access to identical, transparent data on account balances and pending transactions. This design eliminates strategic uncertainty and closes any opportunity for fraud.
In contrast, traditional blockchains suffer from imperfect information, resulting in strategic uncertainty. For instance, in Bitcoin or Ethereum, information gaps around pending payments create vulnerabilities for fraud, such as double-spending. As George Akerlof’s The Market for "Lemons" demonstrates, when information is unevenly distributed, markets lose efficiency, just as when buyers cannot verify product quality.
Game theory’s Prisoner’s Dilemma also highlights how imperfect information can lead to non-group-optimal outcomes. Without certainty about each other’s actions, two rational players are inclined to "defect" rather than cooperate, even if cooperation would yield a better outcome for both. This mirrors blockchain environments where strategic uncertainty can incentivize selfish behavior, potentially harming the network.
TNT addresses this issue by ensuring complete transparency across all participants. In mathematical terms, a Nash equilibrium—under conditions of voluntary exchange—approaches Pareto efficiency when all participants have equal access to information. In TNT, each participant has complete transparency, removing room for strategic uncertainty or exploitation. This results in a cooperative Nash equilibrium where honesty is the rational choice, as fraud is easily detectable and unprofitable.
Unlike Bitcoin or Ethereum, where transaction validity relies on the integrity of miners or validators, TNT enables each node to independently verify every transaction. This removes the need for trust in third parties, as each node can confirm transaction authenticity directly.
Just as Bitcoin nodes reject transactions lacking valid signatures, TNT nodes automatically reject unverifiable transactions. However, TNT’s model of symmetric information allows each participant to independently verify transaction authenticity, ensuring that no participant can profit from dishonest actions. This structure creates a Nash equilibrium where honesty becomes the dominant strategy.
The result is a system with perfectly aligned incentives: fraudulent actions trigger immediate detection and penalties, while honesty maximizes payoffs. TNT’s combination of symmetric information, transparency, and independent verification establishes a secure Nash equilibrium where fraud is systematically discouraged, making honest participation the rational choice for all.
Batch Processing: How Banks Have Always Processed Payments
Batch processing is a time-tested payment method banks have relied on for centuries, dating back to the Italian Renaissance. This approach developed alongside the principles of double-entry bookkeeping introduced by Luca Pacioli around 1492, which revolutionized transaction recording. One of the main advantages of batch processing is fraud prevention through addressing asymmetric information—a situation where different branches (or, in TNT's case, different nodes) have unequal access to transaction data.
In traditional banking, batch processing involves pausing the acceptance of new transactions at the end of the business day to allow branches to synchronize account balances and pending transactions overnight. This ensures that every branch operates with the same, up-to-date information, effectively eliminating discrepancies and minimizing opportunities for fraudulent behavior. TNT applies this same principle within a decentralized blockchain environment.
How TNT’s Batch Processing Works
In TNT, nodes agree to accept payment requests only within designated windows (e.g., odd-numbered minutes) and then process these requests in synchronized batches during predetermined intervals (e.g., the following even-numbered minutes). During these intervals, nodes temporarily pause the acceptance of new transactions and focus exclusively on verifying the current batch. This brief pause allows all nodes to update their version of the ledger simultaneously, ensuring that no node has more recent information than any other.
This synchronization mechanism is similar to how banks stop accepting transactions after business hours to reconcile their ledgers. By pausing briefly to update all nodes at once, TNT eliminates the asymmetric information that could otherwise lead to fraud, such as double spending. In an open, decentralized environment (like the internet, where no one can be forced into an action), fraud requires that one party be better (asymmetrically) informed about a pending transaction than others. TNT’s batch processing prevents this by keeping the entire network precisely aligned in time, effectively closing off any avenue for such fraud to occur.
Continuous Processing vs. Batch Processing
In contrast to TNT’s batch processing, continuous consensus methods, like those used by Bitcoin and Ethereum, validate transactions in real time on a rolling basis. While effective, this continuous processing can create temporary discrepancies between nodes, as transactions are constantly being broadcast and validated. Different nodes might momentarily hold slightly different versions of the ledger’s state, which opens the door to exploits like double spending. In double spending, an attacker takes advantage of the brief delay before the entire network reaches consensus, potentially spending the same coin in multiple places.
TNT’s batch processing eliminates this risk by pausing the acceptance of new transactions long enough for all nodes to reach a universal agreement with zero imperfections in payment information. This ensures the entire network synchronizes its data before proceeding, closing any timing gaps that could otherwise be exploited. This pause guarantees that all nodes operate with the exact same data. Furthermore, unlike the energy-intensive mining required in Bitcoin or the continuous transaction validation in Ethereum, TNT’s method is significantly more efficient.
Summary
Batch processing in TNT creates a controlled and synchronized environment for transaction processing, eradicating discrepancies and all fraud by ensuring that all nodes are fully aligned. It also offers greater energy efficiency than continuous validation methods used by blockchains like Bitcoin and Ethereum, making TNT a robust solution for modern, decentralized payment processing.
The Advantages of TNT-Bank’s Transparency
TNT’s batch processing consensus algorithm offers significant advantages over traditional consensus methods like Proof of Work (PoW) and Proof of Stake (PoS) by addressing the root cause of issues like double spending, which stems from asymmetric information. By ensuring that all nodes in the TNT network maintain consistent, synchronized information, TNT eliminates information asymmetry and makes fraud—such as double spending—impossible, both in theory and practice. TNT follows a "trust-but-verify" model, providing unparalleled efficiency, security, and features that are unmatched by other decentralized platforms.
Here are the key benefits of TNT’s batch processing approach compared to traditional consensus algorithms:
Faster Processing Speed
TNT achieves transaction speeds comparable to those of traditional payment networks like Visa and Mastercard, which process thousands of transactions per second. This is due to its batch-processing method, which eliminates the energy-intensive mining that slows down block creation in PoW systems like Bitcoin. By processing transactions in synchronized batches, TNT settles payments almost instantly, offering a seamless user experience. Unlike PoW systems where each transaction must be individually mined, TNT completes batches at predefined intervals, minimizing wait times and maximizing throughput.Lower Costs
TNT’s batch processing requires minimal computational resources. Transactions are verified through digital signatures, which consume far less energy than the cryptographic puzzles used in PoW systems. Bitcoin’s PoW requires significant energy consumption due to the constant race to solve these puzzles, leading to high operational costs. In contrast, TNT’s highly efficient batch processing drastically reduces transaction costs. Even compared to PoS systems, which are less energy-intensive, TNT’s zero-cost approach (as it doesn’t rely on validators competing for block creation) offers a more cost-effective solution.Zero Risk of Ex-Ante Fraud
TNT eliminates the possibility of fraud, such as double spending, before it occurs. With TNT’s information symmetry, all nodes have an identical real-time view of account balances and pending transactions. In continuous processing systems, there can be brief moments when nodes have differing information, creating windows for fraud. TNT’s batch system ensures all transactions are verified and synchronized in bulk, so every node processes the same information at the same time. This synchronization ensures that fraud, particularly double spending, is impossible from the outset (ex-ante).Full Security Ex-Post
TNT’s batch processing also provides security after transactions are completed (ex-post). Once each batch is processed, wallets cryptographically sign the hash of each update block, ensuring the integrity and authenticity of the transactions. This guarantees that even after transactions are finalized, the system remains secure. In traditional PoW systems, there’s always a risk of a 51% attack, where malicious actors could theoretically rewrite the blockchain’s history by controlling the majority of the network’s mining power. With TNT’s synchronized batch verification and cryptographic signatures, such attacks are mathematically impossible, ensuring the blockchain remains secure post-transaction.Legally Binding Contracts & Fractional Ownership
TNT natively supports legally binding smart contracts and fractional ownership within its consensus mechanism. Unlike other blockchains where smart contracts may be limited or require external layers, TNT integrates these features directly into its protocol. Each transaction requires dual authorization—both the buyer and seller must sign the transaction using digital signatures. This makes every transaction legally binding and ensures both parties agree to the terms. TNT also supports fractional ownership, allowing users to own and trade fractional shares of larger assets. Traditional blockchains often struggle to implement these features natively, whereas TNT handles them seamlessly within its consensus process.Full AML Compliance
TNT is designed with full compliance for Anti-Money Laundering (AML) regulations. Unlike traditional blockchain systems, where transactions are irreversible once broadcast, TNT allows recipients to reject transactions if they suspect illicit activity. Both parties must sign the transaction for it to be finalized, providing a mechanism for rejecting suspicious transfers. This capability ensures TNT can comply with AML regulations in a manner similar to traditional banking systems, where transactions can be flagged and halted for suspicious activity. This adds an extra layer of security and ensures compliance with legal frameworks like those governing the US dollar or the Euro.
In summary, TNT’s batch processing offers superior speed, lower costs, and enhanced security compared to PoW and PoS systems, while also preventing fraud and supporting complex features like legally binding contracts and AML compliance. By synchronizing transaction verification across the network and eliminating information asymmetry, TNT provides a more secure, efficient, and adaptable solution for decentralized finance.
