Hi James,

> I don't really see the vaults case as any different from other
> sufficiently involved uses of bitcoin script - I don't remember anyone
> raising these concerns for lightning scripts or DLCs or tapscript use,
> any of which could be catastrophic if wallet implementations are not
> tested properly.

I think on the lightning side there were enough concerns w.r.t bugs affecting the toolchains in their infancy phases to motivate developers to bound max channel value to 2^24 for a while [0]

[0] https://github.com/lightning/bolts/pull/590

> By comparison, decreasing amount per vault step and one CSV use
> seems pretty simple. It's certainly easy to test (as the repo shows),
> and really the only parameter the user has is how many blocks to delay
> to the `tohot_tx` and perhaps fee-rate. Not too hard to test
> comprehensively as far as I can tell.

As of today you won't be able to test against bitcoin core that a CSV'ed transaction is valid for propagation across the network because your mempool is going to reject it as non-final [1]

[1] https://github.com/bitcoin/bitcoin/pull/21413

Verifying that your whole set of off-chain covenanted transactions is propagating well at different feerate levels, and there is no surface offered to a malicious vault co-owner to pin them can turn quickly as a real challenge, I believe.

> I think the main concern I have with any hashchain-based vault design
> is the immutability of the flow paths once the funds are locked to the
> root vault UTXO.

> Isn't this kind of inherent to the idea of covenants? You're
> precommitting to a spend path. You can put in as many "escape-hatch"
> conditions as you want (e.g. Jeremy makes the good point I should
> include an immediate-to-cold step that is sibling to the unvaulting),
> but fundamentally if you're doing covenants, you're precommitting to a
> flow of funds. Otherwise what's the point?

Yeah, I agree here that's the idea of covenants to commit to a flow of funds. However, I think leveraging hashchain covenants in terms of  vault design comes at the price to make transaction generation errors or key endpoint compromises hardly irrevocable.

I would say you can achieve the same end goal of precommiting to a flow of funds with "pre-signed" transactions (and actually that's what we do for lightning) though while still keeping the upgrade emergency option open. Of course, you re-introduce more assumptions on the devices where the upgrade keys are laying.

I believe both designs are viable, it's more a matter of explaining security and reliability trade-offs to the vaults users. They might be even complimentary as answering different classes of self-custody needs. I'm
just worried as protocol devs, we have a good understanding of those trade-offs to convey them well to the vaults users and have them make a well-informed decision.

> Who's saying to trust hardware? Your cold key in the vault structure
> could have been generated by performing SHA rounds with the
> pebbles in your neighbor's zen garden.
>
> Keeping an actively used multi-sig setup secure certainly isn't free or
> easy. Multi-sig ceremonies (which of course can be used in this scheme)
> can be cumbersome to coordinate.
>
> If there's a known scheme that doesn't require covenants, but has
> similar usage and security characteristics, I'd love
> to know it! But being able to lock coins up for an arbitrary amount of
> time and then have advance notice of an attempted spend only seems
> possible with some kind of covenant technique.

Well, if by covenants you include pre-signed transactions vaults designs, no sadly I don't know schemes offering the same usage and security characteristics...

> That said, I think this security advantage is only relevant in the
> context of recursive design, where the partial unvault sends back the
> remaining funds to vault UTXO (not the design proposed here).

> I'm not really sure why this would be. Yeah, it would be cool to be able
> to partially unvault arbitrary amounts or something, but that seems like
> another order of complexity. Personally, I'd be happy to "tranche up"
> funds I'd like to store into a collection of single-hop vaults vs.
> the techniques available to us today.

Hmmm if you would like to be able to partially unvault arbitrary amounts, while still precommitting to the flow of funds, you might need a sighash flag extension like SIGHASH_ANYAMOUNT ? (my 2 sats, I don't have a design)

Yes, "tranche up" funds where the remainder is sent back to a vault UTXO sounds to me belonging to the recursive class of design, and yeah I agree that might be one of the most interesting features of vaults.

> Pretty straightforward to send such a process (whether it's a program or
> a collection of humans) an authenticated signal that says "hey, expect a
> withdrawal." This kind of alert allows for cross-referencing the
> activity and seems a lot better than nothing!

Yep, a nice improvement. And now you enter into a new wormhole of providing your process with keys to authenticate the signals and how those non-necessarily bitcoin locking-UTXO keys can be compromised or even how the alert mechanism can be abused. We know, security is a never over game :D

> With any use of bitcoin you're going to have critical data that needs to
> be maintained (your privkeys at a minimum), so the game is always
> reducing surface area. If the presigned-txn vault design
> appealed to you as a user, this seems like a strict improvement.

I agree here, the critical data surface sounds to be better with hashchain-based vaults designs.

> I'm not sure who's proposing that counterparties who don't trust each
> other make a vault together. I'm thinking of individual users and
> custodians, each of which functions as a single trusted entity.

If you have a set of custodians, even if they belong to the same administrative entity, one of them might be compromised or bribed and leak the anchor output key to an attacker, therefore preventing the remaining custodians from using the `tocold_tx` ability as expected.

I'm not sure if thinking of the custodians as a single trusted entity is a hard enough assumption for high-stake vaults designs..

> Perhaps your point here is that if I'm a custodian operating a vault and
> someone unexpectedly hacks the fee keys that encumber all of my anchor
> outputs, they can possibly pin my attempted response to the unvault
> transaction - and that's true. But that doesn't seem like a fault unique
> to this scheme, and points to the need for better fee-bumping needs a la
> SIGHASH_GROUP or transaction sponsors.[0]

Yes agree here.

> I would say space efficiency is of secondary concern

> If every major custodian ends up implementing some type of vault scheme
> (not out of the question), this might be a lot of space! However I'm all
> for facilitating the flow of bitcoin from major custodians to miners...
> but it seems like we could do that more cleanly with a block size
> reduction ;). (JUST KIDDING!)

Haha, designing _inefficient_ off-chain contracts for high buying power users to have them pay better the miners in a post-block subsidy world. Sounds smart, well done :)

Antoine