Re: [bitcoin-dev] Ark: An Alternative Privacy-preserving Second Layer Solution

[Antoine Riard <antoine.riard@gmail.com>]

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Hi Burak,

Thanks for the interesting Ark proposal.

From my understanding the protocol is played between 3 entities: the
sender, the receiver and the ASP and you have 3 types of transactions:
- the pool_tx
- the ATLC-connection_tx
- the ATLC-refund_tx

The pool_tx spends an on-chain funding input and 3 outputs:
- the commitment output, committing to a set of N vTXOs outputs (e.g a tree
of promised outputs)
- the connector output, spendable by the ASP signature
- the change output, from the value overflow of the on-chain funding input

A "receiver" vTXO scriptpubkey on pool_tx N includes the following
pseudo-script: multisig(receiver, ASP) or ((pk(receiver)+24h) or
(pk(ASP)+4weeks)). From the PoV of the next pool_tx state, the receiver
becomes the sender.

A ATLC-connection_tx is associated with a pool_tx N is spending one or more
vTXOs outputs from the "sender" (i.e receiver at pool_tx N-1) and one or
more connector outputs from pool_tx N. The initial
uplifting ATLC- connection_tx spends an on-chain input from the initial
sender.

I think there is a loss of funds weakness during the vTXLO transfer phase,
i.e by leveraging an ATLC-refund transaction using the unilateral exit path.

Let's say you have Alice (the sender), Bob (the receiver) and the ASP at
state N. Alice owns a vTXO on pool_tx N:
- after 24, her vTXO N can be spend unilaterally with only her own signature
- she engages with the ASP to construct a new pool_tx N+1 paying a vTXO to
Bob (this vTXO has same relative locktime 24h)
- she reveals her signature to the ASP for the ATLC-connection_tx N+1
spending her vTXO at state N and the connector output at state N+1
- the ASP broadcasts the pool_tx N+1 and the transaction is pending in
network mempools
- Alice broadcasts her ATLC refund tx using the mature unilateral exit path
- this ATLC refund tx replaces any ATLC-connection tx pending in network
mempools
- both the ATLC refund tx for vTXO at state N and the pool_tx at state N+1
confirms
- Bob the receiver can wait 24h and then he can spend the vTXO at state N+1
unilaterally

Alice and Bob successfully colluded to "double-spend" the ASP, without this
service provider earning compensation for the pool_tx state N+1 funding
input.

If I'm correct, I don't know if this weakness can be fixed by adding
another round of interactivity between the sender and the ASP, e.g
disclosing a revocation secret for the ATLC-refund transaction, without
opening the door for the ASP to steal user by stalling the next pool_tx N+1
broadcast and waiting 4 weeks time lock expiration.

All mistakes, confusion or misunderstanding are my own. More details about
transactions, scripts and protocol phases would be appreciated.

Cheers,
Antoine

Le ven. 26 mai 2023 à 16:27, Burak Keceli via bitcoin-dev <
bitcoin-dev@lists.linuxfoundation.org> a écrit :

> Hi David,
>
> Ark can be used for three purposes:
>
> 1. Mixing coins.
> Ark is a scalable, footprint-minimal off-chain mixer. People can use Ark
> to mix their coins with others. This doesn’t require waiting for on-chain
> confirmations since you’re mixing your own coins with others.
>
> 2. Paying lightning invoices
> Ark is interoperable with Lightning, and you can use your Ark funds to pay
> Lightning invoices in a conjoin. This also doesn’t require waiting for
> on-chain confirmations since you consider your payment “done” when you
> obtain the vendor's preimage.
>
> 3. Making internal transfers
> You can use your Ark funds to make internal money transfers without
> introducing inbound liquidity assumptions. The recipient-end has to wait
> for several on-chain confirmations to consider their payment “final”,
> however, their payment has immediate availability to them. Recipients can
> spend their zero-conf funds to pay Lightning invoices in coordination with
> their service provider. If we want to enable Lightning-style instant
> settlement assurances for the internal transfers, we need OP_XOR or OP_CAT
> on the base layer [1].
>
>
> I think you get the gist of it, but I lost you after ”Bob wants to deposit
> 1 BTC with Alice.” sorry.
>
> The initial onboarding phase is non-interactive, and there is no PSBT
> involved. Onboarding (or lifting) is as simple as funding a Bitcoin
> address.
>
> Here I have refactored it for you:
> Bob wants to deposit 1 BTC with Alice. Bob asks his friend Charlie to send
> 1 BTC to an on-chain Bitcoin address whose script is:
> pk(B) && (older(4 weeks) || pk(A))
>
>  From here, there are several things that Bob can do:
> - *Unilaterally withdraw:*
> If Alice happens to be non-collaborative or non-responsive, Bob can simply
> take his 1 BTC back after four weeks.
>
> - *Collaboratively withdraw:*
> Bob and Alice can sign from the 2-of-2 to collaboratively withdraw 1 BTC
> anytime.
>
> - *Collaboratively trade commitments:*
> Alice crafts a transaction containing three outputs; (a) a commitment
> output, (b) a connector output, and (c) a change output. We call this
> transaction “pool”.
> (a) commitment output
> Commitment output (either using CTV or n-of-n multisig) constrains its
> descendant transaction to a set of transaction outputs. To simplify things,
> let’s say there are no other participants in this transaction besides Bob,
> and the descendant transaction has only one output. We call this output
> Bob’s vTXO. Bob’s vTXO also constrains (using CTV or 2-of-2 multisig) its
> descendant transaction to a single transaction output called Bob’s ATLC.
> Bob’s ATLC contains the following script:
> pk(B) && (older(4 weeks) || pk(A))
> As you realize “ATLC” script is identical to the “Funding address” script.
>
> (b) connectors output
> Connectors output is simply a single-sig output spendable by Alice herself:
> pk(A)
>
> Alice locally crafts a descending transaction from this output, spending
> “connectors output” to fund a new output. We call this output a
> ”connector,” which always carries a dust value  and is spendable by Alice
> herself:
> pk(A)
>
> In short, Alice crafts a Bitcoin transaction that spends an input that she
> controls and funds an output that she controls. Alice does not broadcast
> this transaction and keeps it secret.
>
> (c) change output
> money not used for the other two outputs gets sent back to Alice.
>
> 1. Alice places one (or more) input(s) to her “pool” transaction to supply
> funds to commitment output, connectors output, change output, and
> transaction fees.
>
> 2. Bob creates an unsigned PSBT, placing the input that Charlie was
> previously funded.
>
> 3. Bob passes his PSBT to Alice.
>
> 4. Alice places one input to PSBT, the ”connector output,”  which is a
> descendant of the (b) connectors output she is crafting.
>
> 5. Alice places one output to PSBT, a single-sig output that sweeps all
> money to herself (pk(A)).
>
> 6. Alice passes PSBT to Bob. Alice and Bob sign the PSBT and keeps this
> transaction private. This transaction is not valid yet, since the
> connector’s outpoint context does not exist.
>
> 7. Alice signs her one-in, three-out and broadcasts it.
>
> 8. Alice can now claim 1 BTC Charlie has previously funded by revealing
> the descendant transaction of (b) connectors output. She should claim this
> before four weeks.
>
> 9. Bob now has a 1 BTC worth UTXO representation as a descendant of the
> (a) commitment output (a virtual UTXO). He can unilaterally claim this 1
> BTC by revealing the child (Bob’s vTXO) and grandchild (Bob’s ATLC) of the
> (a) commitments output, then waiting a 24-hour window period.
>
> So far, Charlie polluted on-chain by funding an address, and Alice by
> claiming funds from that address. Further steps from here will be footprint
> minimal.
>
> 1. Say, Bob wants to send 1 BTC to Dave.
>
> 2. Alice crafts a transaction containing three outputs; (a) a commitment
> output, (b) a connector output, and (c) a change output. This time
> descendant of (a) commitment output is Daves’s vTXO instead of Bob’s.
> Similarly descendant of Daves’s vTXO is Dave’s ATLC. Dave’s ATLC is:
> pk(D) && (older(4 weeks) || pk(A))
>
> 3. Alice places one connector output as a descendant of (b) connectors
> output, just like before.
>
> 4. Alice places one input to her one-in, three-out transaction to supply
> funds to commitment output, connectors output, change output, and
> transaction fees.
>
> 5. Bob creates an unsigned PSBT, placing his 1-BTC-worth virtual UTXO from
> the (a) commitment output descendants that Alice previously
>
> 6. Bob passes his PSBT to Alice.
>
> 7. Alice places one input to PSBT, the ”connector output,”  which is a
> descendant of the (b) connectors output she is crafting.
>
> 8. Alice places one output to PSBT, a single-sig output that sweeps all
> money to herself (pk(A)).
>
> 9. Alice passes PSBT to Bob. Alice and Bob sign the PSBT and keeps this
> transaction private.
>
> 10. Alice signs her one-in, three-out transaction and broadcasts it.
>
> 11. Bob lets Dave know about this transaction (Alice’s transaction id,
> Dave’s vTXO output index) out-of-band.
>
> 12. When Dave comes back online, he sees from the out-of-band message that
> Bob sent him 1-BTC. He then verifies whether Alice’s transaction id exists,
> whether his vTXO output index is correct, and a set of other validations.
>
> 13. If Dave had been online all this time, he would have had to wait for
> enough confirmations to consider his payment “final.”
>
> [1] https://eprint.iacr.org/2017/394.pdf
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