Re: [bitcoin-dev] MAD-HTLC

[ZmnSCPxj <ZmnSCPxj@protonmail.com>]

Good morning Itay, Ittay, and Matan,

I believe an unstated assumption in Bitcoin is that miners are short-sighted.

The reasoning for this assumption is:

* Deployment of new mining hardware controlled by others may occur at any time you do not control.
  * Thus, any transactions you leave on the table are potentially taken by somebody else and not by you.
  * Sudden changes in hashpower distribution may reduce your expected future earnings, so any future theoretical earnings should be discounted (*in addition to* expected return-on-investment on getting money you can invest *now*).

It also strikes me that, in a world with RBF and CPFP, the same endpoint (i.e. miners earn the entire fund of the HTLC) is achieved by existing HTLCs, without the additional branch and script opcodes needed by MAD-HTLC.
For example, if an HTLC is confirmed but the hashlock-claiming transaction is not being confirmed (because miners are holding it up because Bob is offering a much higher fee in the future for the timelock-claiming transaction), then Alice can, regardless of the reason why it is not being confirmed, bump up the fee with RBF or CPFP.

If the fee bump offered by Alice is sufficiently large, then miners will start re-preferring the Alice hashlock transaction.
To counter this, Bob has to bid up its version higher.

As the timeout approaches, Alice can bump up its fee until it is just 1 satoshi short of the total fund.
It is rational for Alice to do so since at timeout, it can expect to lose the entire fund.
In order for Bob to win, it has to beat that fee, at which point it equals or exceeds the total fund, and miners get the total fund (or more).

Knowing this end-point, rational Bob will not even begin this game.

I think this research considers these two endpoints to be distinct:

* Bob misbehaves and the entire fund is punished by miners, leaving miners with the fund and Alice and Bob without money (MAD-HTLC).
* Bob misbehaves, Alice counters, and the ensuing fee war leads to fees approaching the fund value, leaving miners with the fund and Alice and Bob without money (standard HTLC).

But in practice I think both endpoints are essentially equivalent.

--

What MAD-HTLC can do would be to make different claims:

* Inputs:
  * Bob 1 BTC - HTLC amount
  * Bob 1 BTC - Bob fidelity bond

* Cases:
  * Alice reveals hashlock at any time:
    * 1 BTC goes to Alice
    * 1 BTC goes to Bob (fidelity bond refund)
  * Bob reveals bob-hashlock after time L:
    * 2 BTC goes to Bob (HTLC refund + fidelity bond refund)
  * Bob cheated, anybody reveals both hashlock and bob-hashlock:
    * 2 BTC goes to miner

This is an actual improvement over HTLC: Bob misbehavior leads to loss of the fidelity bond.
The above cases can be assured by requiring both Alice and Bob to sign in the alice-hashlock branch, so that the splitting of the fund is enforced, and SegWit signing so that the dependent transaction is signed before the HTLC-funding transaction is.
It can also be implemented with `OP_CHECKTEMPLATEVERIFY`.

Regards,
ZmnSCPxj