True-No-Fraud
What Is Fraud in Blockchain Payment Processing, and How We Detect and Expose It with Absolute, 100% Certainty in the TNT-Bank System
By Nathan and Joseph Haykov
July 15, 2025
Since a blockchain like Bitcoin essentially mirrors a commercial bank’s general ledger—a double-entry system that records balanced debit-credit movements of “coins” between wallet-like accounts—it’s curious that Satoshi Nakamoto chose terminology associated with commodity money to describe what is, in effect, representative money (i.e., bank funds moved by debiting one account and crediting another).
Regardless, since the Bitcoin blockchain is essentially a database—a computer-stored file organized as a sequentially linked list of blocks and maintained via open-source software—the question then becomes: what formally and mathematically constitutes fraud in blockchain payments?
Blockchain fraud is identical to fraud with bank money or any other form of currency: passing off counterfeit funds. Double-spending directly parallels real-world schemes—whether bouncing a check or passing counterfeit coins or cash. In traditional banking, fraud occurs when a payer debits an account without sufficient funds. On Bitcoin, a recipient confirms payment by inspecting the ledger: they see the coin credited to their wallet and can trace the transaction back to its origin. The only way to defraud the system is to create two conflicting blockchain branches—one recording the payment and another denying it.
The capacity for real-world fraud therefore depends on asymmetric information regarding which branch of the proof-of-work (or any blockchain database) is genuine—that is, the presence of competing branches and uncertainty over which will ultimately be accepted as the canonical chain.
In practice, competing miner groups continuously produce short‐lived branches. Bitcoin nodes resolve these by adopting the chain with the highest cumulative proof‐of‐work. To protect against routine branching and the unlikely 51% attack, recipients typically wait for six additional block confirmations—approximately one hour—before considering a transaction final. Only once these confirmations have firmly established a single canonical chain can a user be confident—barring a 51% attack—that the payment is irreversible.
Indeed, the immense resources required for Bitcoin mining make a 51% attack economically prohibitive. In practice, the cost of amassing enough hashing power to override the network far exceeds the market value of any stolen coins—rendering such theft irrational. That economic barrier gives Bitcoin stronger protection against fraud than any alternative cryptocurrencies (including proof-of-stake systems), where the real-world costs of mounting an attack are substantially lower, for the following reason:
Proof-of-stake introduces a governance vulnerability that’s absent in Bitcoin’s proof-of-work model. Imagine law enforcement—say, the FBI—coercing a majority of Ethereum validators by threatening legal penalties, up to imprisonment, to censor or seize specific funds (for example, ransomware payments). Validators then face a clear choice: comply or risk jail time.
In that scenario, the canonical Ethereum chain would almost certainly exclude your “tainted” wallet. Your transactions would be orphaned, effectively forking your assets off the legitimate ledger. Unlike Bitcoin’s security—anchored in globally distributed ASIC hardware—proof-of-stake depends on identifiable validators who can be coerced. Thus, if you hold illicit funds on a PoS chain, state intervention could forcibly remove your assets from the canonical blockchain. And just to be clear, we agree that genuine criminal activity should—and must—be punished.
However, our core argument is this: while society rightly condemns crimes such as ransomware, blockchain security must be assessed mathematically. From a game-theoretic standpoint, proof-of-stake systems—whether delegated, federated, or otherwise (e.g., Ethereum, Cardano, XRP)—share a critical vulnerability: validator collusion enabling fraud or theft carries negligible real-world resource costs. Consequently, proof-of-stake is inherently more susceptible to fraud than proof-of-work blockchains like Bitcoin.
The Agency Theory Lens
All blockchain users act as principals—holders of private keys controlling wallet funds—just like JP Morgan clients rely on the bank to safeguard their dollar deposits. They depend on agents (miners, validators, delegates, federators) to honestly maintain the ledger.
The critical distinction:
Proof-of-Work: Defrauding principals (e.g., via double-spends or chain reorganizations) demands a massive, irreversible outlay of real-world resources—electricity, specialized ASIC hardware, etc.
Proof-of-Stake (and all alternatives): Defrauding principals requires only collusion among agents. No costly energy or physical infrastructure is needed; validators can attack the network simply by signing conflicting blocks—a virtually costless digital act.
Why Resource Costs Matter
Bitcoin’s proof-of-work anchors security in thermodynamic reality: “Theft requires burning more value (in electricity and hardware) than the stolen coins are worth.” Proof-of-stake, by contrast, relies on legal and social assumptions: “Validators won’t collude because they’d lose reputation, forfeit staked assets, or face legal consequences.” This is a profound weakness. As the FBI hypothetical illustrates, a state can coerce validators into collusion (for example, by freezing “criminal” funds). Game theory tells us that when attacking a system costs nothing beyond coordination, the attack surface grows exponentially.
Thus, proof-of-work remains uniquely robust: it is the only consensus mechanism where adversarial behavior is constrained by physics, not merely by incentives. The market agrees: Bitcoin’s market capitalization tops $2.3 trillion—a titan not just in absolute terms but also representing roughly 70 percent of the entire cryptocurrency market’s value. Ethereum, its closest competitor despite superior smart-contract capabilities, sits at about $500 billion—less than a quarter of Bitcoin’s valuation.
Why Transparent Network Technologies (TNT-Bank) Is Superior to Bitcoin
TNT-Bank achieves true symmetry of information between principals (wallet owners) and agents (validators) through its batch-processing consensus:
Perfect data symmetry. Every participant shares identical, real-time ledger data, eliminating any information asymmetry.
Independent fraud-proof verification. Principals cryptographically verify validator actions and can provably expose malicious behavior by submitting evidence to any honest validator.
Incentivized whistleblowing. Both validators and wallet holders are rewarded for detecting and reporting fraud, creating a self-reinforcing Nash equilibrium.
Game-Theoretic Outcomes
Fraud impossibility. Malicious agents are detected and penalized before they can commit any fraud.
Zero agency costs. Validator collusion cannot extract economic rents—just one honest actor can unravel any conspiracy.
Pareto efficiency. The system converges to a stable state in which no participant can benefit by deviating.
In short, TNT-Bank isn’t just an improvement—it’s mathematically perfected money. Unlike Bitcoin’s probabilistic finality, which depends on physical mining costs, TNT-Bank enforces deterministic honesty through transparent, cryptographic verification.
Why Obtain a Commercial License?
You might be wondering: if the TNT Foundation’s blockchain software is fully open source and freely downloadable, what value does an official license add?
Legal compliance. Using our software without a license is unlawful—and pointless—since our core license (for educational and testing purposes) is free.
Seamless interoperability. A commercial license lets you transact across other TNT-Bank chains, using our TNT-coin as the medium of exchange.
Certified fraud detection. We provide an open-source compliance tool—certified to meet U.S. legal requirements (and those of any jurisdiction where we license it)—that automatically identifies fraudulent nodes.
As a tokenized real-world asset issuer or stablecoin provider, using our compliance tool to select the correct chain guarantees you the strongest legal protection against lawsuits—stronger than any other method for determining the canonical blockchain on which you’re legally required (for example, as a stablecoin issuer in the jurisdiction where you hold U.S. dollars) to redeem your tokens. Any blacklisting is strictly temporary and reversible through the legal system, and licensed users receive full support to restore improperly blacklisted funds. The only remaining risk stems from potential bugs in the open-source code—risks we continuously minimize through public review, although no warranties are offered.
This is what protocol-native built-in compliance means for issuers: you can fractionalize real-world commodities without fearing AML/KYC or FinCEN violations, and without the threat of lawsuits from fractional shareholders in state court. Our first TNT-consensus–compliant digital token is the Bearer Water Bond (BWB)—a token redeemable for FDA-certified potable spring water at its source, a resource that is increasingly rare and valuable.
In summary, by eliminating information asymmetry and empowering principals to oversee their agents’ performance, TNT-Bank delivers—for the first time ever—a fully trustless (free of agency costs and rent-seeking under symmetric information) yet 100 percent legally compliant payment processing system.
https://finance.yahoo.com/news/jpmorgans-dimon-and-citigroups-fraser-consider-stablecoins-in-wall-street-crypto-pivot-204355546.html
https://finance.yahoo.com/news/why-crypto-giant-tether-bought-100117807.html
in financial markets, the only source of long-term, consistent outperformance for “smart money” is the underperformance of “less-informed” or less-sophisticated investors. This is not opinion—it’s an accounting identity. Let’s build it step by step.
🧮 The Core Identity:
“The Arithmetic of Active Management” (Bill Sharpe, 1991)
Sharpe’s point is devastatingly simple:
Before costs, the return of all investors combined = the return of the market.
Why?
Because “the market” is just the weighted average of everyone’s holdings. So:
If someone beats the market,
Someone else must have lagged behind.
After costs (fees, slippage, trading expenses):
Active management, in aggregate, underperforms the market portfolio.
🔁 So Where Does Alpha Come From?
Let’s take the investor universe and split it into two groups:
Smart money: Warren Buffett, Bill Ackman, Ken Griffin, Renaissance Technologies, etc. (the few who consistently outperform)
Dumb money: Retail investors, undisciplined speculators, behavioral traders, people chasing momentum without information, etc.
Now suppose:
The total market earns 8% in a year.
Passive indexers, after negligible costs, earn ~7.9%.
Active managers, after costs, on average earn ~7.5%.
But—Buffett earns 12%. So how is that possible?
Because someone else (collectively) earned less than the market.
That is the only source of Buffett’s extra 4%.
🧩 This Is an Accounting Identity
There are no magic profits in public markets. Every dollar gained above the market return by one participant must be lost relative to the market by someone else.
Think of it like poker:
If a few players consistently win, it means the others consistently lose.
The stock market isn’t magic—it’s a zero-sum game relative to the benchmark, after costs.
So the source of Buffett’s outperformance must be the counterparties he trades against:
Retail selling to him during panic
Traders chasing fads while he buys fundamentals
Institutions under pressure to meet quarterly numbers while he thinks in decades
🧠 What About Passive Investors?
Passive investors are not trying to outperform. They are the benchmark. They accept market returns with minimal cost.
They don’t lose to Buffett—they just don’t try to beat him. It’s the active managers chasing alpha and failing (because of fees and poor decisions) that provide the performance shortfall that funds Buffett’s gains.
🧵 Conclusion: Alpha Has to Come From Somewhere
✅ In any given year:
The market return is the average of all returns (identity)
Every active dollar that beats the market must be matched by a dollar that lags it
After costs, net alpha is negative
✅ So, when:
Buffett earns 20%,
Ackman makes a 6x on a distressed credit bet,
Ken Griffin arbitrages order flow,
The money has to come from someone.
It comes from less-informed, reactive, or cost-burdened investors.
That is the only possible source, as a matter of accounting identity.
🧩 Key Takeaway:
All consistent investment outperformance is wealth transferred from less-informed or poorly-executing counterparties.
Not opinion. Not philosophy.
Just math.
Just Sharpe.