Re: [bitcoin-dev] Smart Contracts Unchained

[ZmnSCPxj <ZmnSCPxj@protonmail.com>]

Good morning Nadav,

Yes, transporting contracts over a single direct channel is always possible.

When Lightning switches to Decker-Russell-Osuntokun ("eltoo"), do note that contracts with an absolute timelock must be forced onchain earlier than the absolute timelock by the CSV requirement of the channel (unilateral close time).

With current Poon-Dryja channels, transported contracts must be augmented by a 2-of-2 on all branches, which can be done by adding a 2-of-2 multisig on the escrow branch, using temporary keys.
The purpose of the 2-of-2 is to enforce that the only valid claims to the contract have an `nSequence` representing the unilateral close time of the channel.
xref. HTLC-timeout and HTLC-success transactions in BOLT#3.

Transporting over multiple hops requires that compliance to a contract makes one side reveal information that the other side does not know, together with some kind of timeout/backoff.
Practically speaking, only HTLC-type contracts can be transported.
For example, DLCs will have many possible branches where the Oracle provides a signature for one branch, and this signature is what is learned by the other party in the contract.
In addition, DLCs for practical use require a timeout (in case the Oracle fails to reveal the signature on the appointed time).
Thus, far fewer contracts can be transported over the network.

(Of note is that a Lightning channel is itself a contract (that is transportable only within a direct channel); this is the basis of channel factories, where the factory level is effectively a "channel" with more than two participants, and transporting Lightning channels instead of HTLCs)
(You may be interested in looking at the "Fulgurite" effort)

OF note is that DLCs have an Oracle.
I observe that escrow services (which are specializations of the Smart Contracts Unchained technique) are basically oracles also.
If DLCs can transport their oracle signatures over multiple hops, then it should be possible for Smart Contracts Unchained to transport the federation/escrow signatures over multiple hops also.
I do not know the math behind DLCs enough to be certain, however, and leave it to better mathematicians than I.

Regards,
ZmnSCPxj

Regards,
ZmnSCPxj

‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
On Thursday, April 18, 2019 12:17 AM, Nadav Kohen <nadav@suredbits.com> wrote:

> Hi all!
>
> I've been thinking a lot about how to add the benefits that lightning provides in terms of privacy and speed to the smart contracts unchained setup. The high-level idea is to utilize the fact that a lightning channel already has on-chain funds locked up, and if parties cooperate, some of these funds can be moved into the 2/3 MultiSig output needed for the escrow scheme by cooperating off-chain (and then moved back to their channel balances off-chain as well). The following is an admittedly pretty rough outline of how this might be accomplished.
>
> A - B : Smart Contracts in a Lightning Channel
>
> 1) Parties both commit to a 2/3 MultiSig output on their next commitment transaction
> 2) Parties then both revoke_and_ack
> 3) When the contract yields a result, the to_local and to_remote balances can be updated and the 2/3 MultiSig output can be removed
> 4) If either party is uncooperative, their counter-party can force close the channel and funds can be resolved on-chain using the escrow
>
> If either party does not revoke_and_ack well before any potential for them to discover if they have an advantage in the contract (or after some small but reasonable time), their counter-party should go on chain with the commitment transaction containing the 2/3 MultiSig
>
> A - B - C : Single Hop Smart Contracts (Useful if someone, B in this case, wants to provide a hub that matches users wanting to enter smart contracts)
>
> 1) A irrevocably commits to a 2/3 MultiSig output on their commitment transaction with B (which B also commits to but does not yet revoke their old state)
> 2) C irrevocably commits to the same 2/3 MultiSig output on their commitment transaction with B (which B also commits to)
> 3) B irrevocably commits to both outputs
> 4) When the contract yields a result, say A should win some money from C, then A can ask B to remove that output (and update balances) by revealing to B how to claim funds from C
> 5) B can then ask C to remove the output and add to B's balance
>
> If B does not revoke_and_ack on either channel, then the affected counter-party should close the channel and go on chain with the 2/3 MultiSig transaction
> If B refuses to remove the output, A can claim their funds on-chain where B can learn how to claim funds from C
> If C refuses to remove the output, B can claim their funds on-chain using the information revealed by A
>
> Problems: How do we ensure that only B can claim the 2/3 MultiSig from C, and not anyone who sees A's on-chain spend of their 2/3 MultiSig? I'm pretty sure this is possible to do but I don't know Script well enough
>
> A - B - C - D : Fully Routed Smart Contracts
>
> 1) Given the n possible outcomes in which A gets money from the contract between A and D, a_1 < a_2 < ... < a_n, and the m possible outcomes in which D gets money, d_1 < d_2 < ... < d_m, D must send n HTLCs to A with the amounts a_1, a_2 - a_1, a_3 - a_2, ..., a_n - a_(n-1) and A must send m HTLCs to D with amounts d_1, d_2 - d_1, d_3 - d_2, ..., d_m - d_(m-1)
> 2) These HTLCs must be special and have two hashes, where either preimage unlocks the funds
> 3) In the payments from A to D, A knows one preimage and the smart contracting platform knows the other (and similarly for D to A)
> 4) Should a_i be the outcome of the contract, D should tell A what the preimages are to payments 1 through i
> 5) D should fail all m payments
> 6) A should fail all payments i+1 through n
> (It is possible and in fact likely that there can be ways to use fewer transactions and thus less collateral than this, perhaps by using subtraction and not just addition as in a_i - d_j, what I've presented is simply a lower bound that works in all cases)
>
> If D does not reveal their preimages, A can get the relevant preimages from the smart contracting platform
>
> Problems: The smart contracting platform is given more information about the contract in the happy path in this scheme. Also, all routers need to support special double-hash HTLCs
>
> An alternative way to possibly do multi-hop routing that would require less be told to the escrow service, is to have each routing node add an output on either side where it takes one position in one channel and the other position in the other channel (essentially allowing them to break event when the contract is completed). This has the same problems as the Single Hop case as well as the additional problem (that I couldn't imagine a solution for) of making the commitments to the 2/3 MultiSig output on commitment transactions atomic; in the single hop case incentives seem to work out but I don't know how "failed routing" would be detected or handled in the multi-hop case.
>
> Feedback welcome!
>
> Best,
> Nadav
>
> On Wed, Apr 3, 2019 at 9:14 PM ZmnSCPxj via bitcoin-dev <bitcoin-dev@lists.linuxfoundation.org> wrote:
>
> > https://zmnscpxj.github.io/bitcoin/unchained.html
> >
> > Smart contracts have traditionally been implemented as part of the consensus rules of some blokchain.  Often this means creating a new blockchain, or at least a sidechain to an existing blockchain.  This writeup proposes an alternative method without launching a separate blockchain or sidechain, while achieving security similar to federated sidechains and additional benefits to privacy and smart-contract-patching.
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