Decentralized Factoring for Self-Sovereign Identities

Nasibeh Mohammadzadeh,José Luis Muñoz-Tapia,Sadegh Dorri Nogoorani

doi:10.3390/electronics10121467

Nasibeh Mohammadzadeh, José Luis Muñoz-Tapia + Show 1 more

Open Access

https://doi.org/10.3390/electronics10121467

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Abstract

Invoice factoring is a handy tool for developing businesses that face liquidity problems. The main property that a factoring system needs to fulfill is to prevent an invoice from being factored twice. Distributed ledger technology is suitable for implementing the platform to register invoice factoring agreements and prevent double-factoring. Several works have been proposed to use this technology for invoice factoring. However, current proposals lack in one or several aspects, such as decentralization and security against corruption, protecting business and personally identifiable information (PII), providing non-repudiation for handling disputes, Know-Your-Customer (KYC) compliance, easy user on-boarding, and being cost-efficient. In this article, a factoring registration protocol is proposed for invoice factoring registration based on a public distributed ledger which adheres to the aforementioned requirements. We include a relayer in our architecture to address the entry barrier that the users have due to the need of managing cryptocurrencies for interacting with the public ledger. Moreover, we leverage the concept of Verifiable Credentials (VCs) for KYC compliance, and allow parties to implement their self-sovereign identities by using decentralized identifiers (DIDs). DIDs enable us to relay on the DIDComm protocol for asynchronous and secure off-chain communications. We analyze our protocol from several security aspects, compare it to the related work, and study a possible business use case. Our evaluations demonstrate that our proposal is secure and efficient, as well as covers requirements not addressed by existing related work.

Highlights

We presented a protocol that uses a public distributed ledger to register invoice factorings
One advantage of using decentralized identifiers (DIDs) is that we can relay on the new protocols being developed in this ecosystem, like DIDComm, which allows us to implement asynchronous secure communications between participants
When using DIDs, we can leverage on the concept of Verifiable

Summary

Introduction

In business-to-business financial relationships, it is a common practice to pay for some services or products with some delay—for example, several months later. In this situation, the provider (namely the seller) might sell her future receivable finance (invoice from a buyer) with a discount to a factoring entity (namely the factor, e.g., a bank). There are several issues and challenges in the traditional invoice factoring process [2] It often requires several manual steps, and the information is dispersed among different systems and databases [3,4]. A secret key is shared between intended parties and is used for both encryption and decryption. In asymmetric encryption, a pair of keys (public and private) are used. The public key is available to everyone and can be used to encrypt data, but only one entity owns the private key and can decrypt the encrypted data

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