Re: [bitcoin-dev] P2P trading replacement transactions

[Michael Folkson <michaelfolkson@protonmail.com>]

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Hi alicexbt

What do you mean by "replacement transaction"? Replacing or swapping outputs with a counterparty's?

I guess I'm struggling to understand exactly what you are attempting to achieve here with regards to privacy and if this additional protocol complexity is worth it. Recall a 2 (or n) party coinjoin would get you an output where it isn't clear to blockchain observers which output you control and a coinswap [0] would have you taking the coin history of your counterparty. What does this scheme offer with regards to privacy that those don't? This seems to have more complexity too though I maybe misunderstanding something.

Thanks
Michael

[0]: https://bitcoinops.org/en/topics/coinswap/

--
Michael Folkson
Email: michaelfolkson at [protonmail.com](http://protonmail.com/)
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------- Original Message -------
On Friday, August 5th, 2022 at 15:44, alicexbt via bitcoin-dev <bitcoin-dev@lists.linuxfoundation.org> wrote:

> Hi Bitcoin Developers,
>
> Does it make sense to trade replacement transactions for privacy? I have shared basic details to implement this and would love to read opinions about it or ways to improve it:
>
> =============================
> alice
> =============================
>
> tx1: input a (0.01) -> output b1 (0.008)
> -> change c1 (0.001)
>
> tx2: input a (0.01) -> output e2 (0.007)
> -> output f2 (0.001)
>
> =============================
>
> bob
> =============================
>
> tx1: input d (0.011) -> output e1 (0.007)
> -> change f1 (0.003)
>
> tx2: input d (0.011) -> output b2 (0.008)
> -> output c2 (0.001)
>
> =============================
>
> carol
> =============================
>
> - creates an API to manage trades that will use 2 of 3 multisig
> - alice and bob create orders for replacement
> - either they could be matched automatically using some algorithm or bob manually accepts the offer
> - 2 of 3 multisig is created with Alice, Bob and Carol keys
> - bob locks 0.01 BTC in it and shares outputs e2,f2 with alice
> - alice signs tx2 and shares tx with bob
> - alice locks 0.011 BTC in it and shares outputs b2,c2 with bob
> - bob signs tx2 and shares with alice
> - both replacement txs can be broadcasted
> - funds are released from 2 of 3 multisig with a tx having 3 outputs (one to pay fee which goes to carol)
>
> positives:
>
> - privacy
>
> negatives:
>
> - extra fees
> - will take some time although everything will be managed by wallet with API provided by carol
> - need to lock bitcoin with same amount as used in tx1
> - amounts could still be used to link txs in some cases- carol and other peer knows the details
>
> /dev/fd0
>
> Sent with [Proton Mail](https://proton.me/) secure email.

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