Re: [bitcoin-dev] Hiding CoinSwap Makers Among Custodial Services

[Chris Belcher <belcher@riseup.net>]

Hello ZmnSCPxj,

On 11/06/2020 12:51, ZmnSCPxj wrote:
> Good morning Chris, and bitcoin-dev (but mostly Chris),
> 
> 
> I made a random comment regarding taint on bitcoin-dev recently: https://lists.linuxfoundation.org/pipermail/bitcoin-dev/2020-June/017961.html
> 
>> For CoinSwap as well, we can consider that a CoinSwap server could make multiple CoinSwaps with various clients.
>> This leads to the CoinSwap server owning many small UTXOs, which it at some point aggregates into a large UTXO that it then uses to service more clients (for example, it serves many small clients, then has to serve a single large client that wants a single large UTXO for its own purposes).
>> This aggregation again leads to spreading of taint.
> 
> I want to propose some particular behaviors a SwapMarket maker can engage in, to improve the privacy of its customers.
> 
> Let us suppose that individual swaps use some variant of Succinct Atomic Swap.
> Takers take on the role of Alice in the SAS description, makers take on the role of Bob.
> We may be able to tweak the SAS protocol or some of its parameters for our purposes.
> 
> Now, what we will do is to have the maker operate in rounds.
> 
> Suppose two takers, T1 and T2, contact the sole maker M in its first ever round.
> T1 and T2 have some coins they want to swap.
> They arrange things all the way to confirmation of the Alice-side funding tx, and pause just before Bob creates its own funding tx for their individual swaps.
> The chain now shows these txes/UTXOs:
> 
>      42 of T1 --->  42 of T1 & M
>      50 of T2 --->  50 of T2 & M
>     100 of T1 ---> 100 of T1 & M
> 
>     200 of M  -
> 
> Now the entire point of operating in rounds is precisely so that M can service multiple clients at the same time with a single transaction, i.e. batching.
> So now M provides its B-side tx and complete the SAS protocols with each of the takers.
> SAS gives unilateral control of the outputs directly to the takers, so we elide the fact that they are really 2-of-2s below:
> 
>      42 of T1 --->  42 of T1 & M
>      50 of T2 --->  50 of T2 & M
>     100 of T1 ---> 100 of T1 & M
> 
>     200 of M  +-->  11 of M
>               +--> 140 of T1
>               +-->  49 of T2
> 
> (M extracted 1 unit from each incoming coin as fee; they also live in a fictional universe where miners mine transactions out of the goodness of their hearts.)
> Now in fact the previous transactions are, after the SAS, solely owned by M the maker.
> Now suppose on the next round, we have 3 new takers, T3, T4, and T5, who offer some coins to M to CoinSwap, leading to more blockchain data:
> 
>      42 of T1 --->  42 of T1 & M
>      50 of T2 --->  50 of T2 & M
>     100 of T1 ---> 100 of T1 & M
> 
>     200 of M  -+->  11 of M
>                +-> 140 of T1
>                +->  49 of T2
> 
>      22 of T3 --->  22 of T3 & M
>      90 of T3 --->  90 of T3 & M
>      11 of T4 --->  11 of T4 & M
>      50 of T4 --->  50 of T4 & M
>      20 of T5 --->  20 of T5 & M
> 
> In order to service all the new takers of this round, M takes the coins that it got from T1 and T2, and uses them to fund a new combined CoinSwap tx:
> 
>      42 of T1 --->  42 of T1 & M -+--+-> 110 of T3
>      50 of T2 --->  50 of T2 & M -+  +->  59 of T4
>     100 of T1 ---> 100 of T1 & M -+  +->  14 of T5
>                                      +->   9 of M
>     200 of M  -+->  11 of M
>                +-> 140 of T1
>                +->  49 of T2
> 
>      22 of T3 --->  22 of T3 & M
>      90 of T3 --->  90 of T3 & M
>      11 of T4 --->  11 of T4 & M
>      50 of T4 --->  50 of T4 & M
>      15 of T5 --->  15 of T5 & M
> 
> That transaction, we can observe, looks very much like a batched transaction that a custodial service might produce.
> 
> Now imagine more rounds, and I think you can begin to imagine that the magic of transaction batching, ported into SwapMarket, would help mitigate the blockchain size issues that CoinSwap has.
> 
> Makers are expected to adopt this technique as this reduces the overall cost of transactions they produce, thus they are incentivized to use this technique to increase their profitability.
> 
> At the same time, it spreads taint around and increases the effort that chain analysis must go through to identify what really happened.
> 
> Regards,
> ZmnSCPxj
> 

Would it be fair to summarize the idea in this way:

CoinSwappers can slow down the CoinSwap process which will give an
opportunity for makers to use batching.