client requests a file

servers propose a route and a fee, recorded in a smart contract. servers compete for lowest fee (market-based)

client agrees on a proposed route and fee, by depositing a payment in the smart contract

server locks a deposit equal to the fee in the smart contract (similar to two-party double deposit)

both the client fee and server deposit are now locked. if the transfer of the file fails, they use dispute resolution with deposit as incentive for finding successful resolution.

server encrypts the file that will be sent to the client, uploads a signed hash of the encrypted file to a smart contract

server sends the encrypted file to the client

client uploads a hash of the file to the smart contract

server uploads the decryption key to the smart contract, it is validated by comparing the signed hash to signature(hash)

client payment, held by the smart contract, is transferred to the server

client decrypts their file using the private key that has been uploaded to the smart contract

What’s the benefit of this over nodes just paying each other for bandwidth or fixed capacity as in the current system?

No internet provider, request internet provider on demand based on who can deliver package. For example if I want file QmQAcGqAUsLjp7QG2krGtXdJfP96skQeEB3vm7K2XJR5j8 (one out of 2^256 files in the planetary file system), I broadcast a request that also appends addresses of those who relay it so it is easy to find way back to me, routes are suggested to me, payment happens automatically after file delivered.