This isn't mutually assured destruction unless they both put everything they have into the risked funds pot.
Say Alice is a squillionaire and Bob is pretty skint, then under this scheme Alice might deliberately screw the deal to burn the funds on purpose, as for Alice it is a small loss, but for Bob it is devastating.
It's mutually assured destruction within a specific deal, not within their biological lives (like in case of a military doctrine). This allows maintaining an equilibrium. Regardless of our wealth, we both put in 1 BTC before trading something worth 1 BTC.
Maybe the name is not perfect, but it's quite close to what NashX provides.
It isn't in equilibrium though unless each party knows how much that 1BTC is worth to the other party. Knowledge of the other person's wealth is vital in this, otherwise it is just an abuse of terminology.
Just as in the case that MAD is not in equilibrium unless both parties have extensive and reliable knowledge about the nuclear capabilities and procedures of the other, so this is not in equilibrium if there is any doubt about either what the financial capabilities of the other party are, or if there are doubts about what your item is worth to them personally.
Also, the whole thing is a bit odd anyway as it is using a currency to facilitate a direct barter. I am trying to think of situations where someone would want to do a direct swap and use something like this to insure it.
Bob's worst scenario is no item and no money, with Alice getting both items and no money and Bob has no idea beyond Alice's say-so whether Alice values both items more than the money.
So for low value items, this would seem silly as it would be better to just risk the item rather than the item plus some money, but the higher the value of the item, the higher the risk of miscalculating the funds required to secure the transaction.
> It isn't in equilibrium though unless each party knows how much that 1BTC is worth to the other party.
Strictly speaking, one can never possibly know other person's "real" valuation. People can always lie to themselves and change their mind. The only way we can know how much 1 BTC is worth is by seeing a successful 1 BTC transaction.
> Also, the whole thing is a bit odd anyway as it is using a currency to facilitate a direct barter.
There's nothing odd. If I want to exchange my bike for an iPhone, I have to be very lucky to find someone who wants my bike and does not want his iPhone. That's why we all use money, it's the most marketable product — you can sell it to anyone.
> Bob's worst scenario is no item and no money, with Alice getting both items and no money and Bob has no idea beyond Alice's say-so whether Alice values both items more than the money.
This is fixed easily by having insurance deposit 1.5x or higher that of the price. So Alice is motivated to pay the bill to release higher amount.
Q: Why don't we give destroyed funds to charity or miners?
A: It gives them a bad incentive to make fake accounts, get into fake deals with real people, and destroy risk funds. If destroyed risk funds are not really destroyed and given to anyone, then whoever gets that has bad incentive to do bad things to get more of it.
I have concern about btc removed "forever" [0] and btc-rich folk draining the funds of poorer folks. Like how megacorps with huge legal budgets can bankrupt the average joe if they attempt court combat. An entity with a massive mining % && btc-income could stockpile for the sake of draining funds in bad trades.
[0] as long as the crypto algorithms remain secure
Say Alice is a squillionaire and Bob is pretty skint, then under this scheme Alice might deliberately screw the deal to burn the funds on purpose, as for Alice it is a small loss, but for Bob it is devastating.