Date: Mon, 8 Aug 2016 17:47:07 +0200
From: Henning Kopp <henning.kopp@uni-ulm.de>
To: tony.991@gmail.com, Tony Churyumoff <tony991@gmail.com>,
	Bitcoin Protocol Discussion <bitcoin-dev@lists.linuxfoundation.org>
Message-ID: <20160808154707.GB2196@banane.informatik.uni-ulm.de>
References: <CAL3p6zpADtYFQnQUr3Efk6V59+K+bB3tPQQMGT9weiafU=43zA@mail.gmail.com>
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Subject: Re: [bitcoin-dev] Hiding entire content of on-chain transactions
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Hi Tony,

I see some issues in your protocol.

1. How are mining fees handled?

2. Assume Alice sends Bob some Coins together with their history and
Bob checks that the history is correct. How does the hash of the txout
find its way into the blockchain?

Regarding the blinding factor, I think you could just use HMAC.

All the best
Henning


On Mon, Aug 08, 2016 at 06:30:21PM +0300, Tony Churyumoff via bitcoin-dev wrote:
> This is a proposal about hiding the entire content of bitcoin
> transactions.  It goes farther than CoinJoin and ring signatures, which
> only obfuscate the transaction graph, and Confidential Transactions, which
> only hide the amounts.
> 
> The central idea of the proposed design is to hide the entire inputs and
> outputs, and publish only the hash of inputs and outputs in the
> blockchain.  The hash can be published as OP_RETURN.  The plaintext of
> inputs and outputs is sent directly to the payee via a private message, and
> never goes into the blockchain.  The payee then calculates the hash and
> looks it up in the blockchain to verify that the hash was indeed published
> by the payer.
> 
> Since the plaintext of the transaction is not published to the public
> blockchain, all validation work has to be done only by the user who
> receives the payment.
> 
> To protect against double-spends, the payer also has to publish another
> hash, which is the hash of the output being spent.  We’ll call this hash *spend
> proof*.  Since the spend proof depends solely on the output being spent,
> any attempt to spend the same output again will produce exactly the same
> spend proof, and the payee will be able to see that, and will reject the
> payment.  If there are several outputs consumed by the same transaction,
> the payer has to publish several spend proofs.
> 
> To prove that the outputs being spent are valid, the payer also has to send
> the plaintexts of the earlier transaction(s) that produced them, then the
> plaintexts of even earlier transactions that produced the outputs spent in
> those transactions, and so on, up until the issue (similar to coinbase)
> transactions that created the initial private coins.  Each new owner of the
> coin will have to store its entire history, and when he spends the coin, he
> forwards the entire history to the next owner and extends it with his own
> transaction.
> 
> If we apply the existing bitcoin design that allows multiple inputs and
> multiple outputs per transaction, the history of ownership transfers would
> grow exponentially.  Indeed, if we take any regular bitcoin output and try
> to track its history back to coinbase, our history will branch every time
> we see a transaction that has more than one input (which is not uncommon).
> After such a transaction (remember, we are traveling back in time), we’ll
> have to track two or more histories, for each respective input.  Those
> histories will branch again, and the total number of history entries grows
> exponentially.  For example, if every transaction had exactly two inputs,
> the size of history would grow as 2^N where N is the number of steps back
> in history.
> 
> To avoid such rapid growth of ownership history (which is not only
> inconvenient to move, but also exposes too much private information about
> previous owners of all the contributing coins), we will require each
> private transaction to have exactly one input (i.e. to consume exactly one
> previous output).  This means that when we track a coin’s history back in
> time, it will no longer branch.  It will grow linearly with the number of
> transfers of ownership.  If a user wants to combine several inputs, he will
> have to send them as separate private transactions (technically, several
> OP_RETURNs, which can be included in a single regular bitcoin transaction).
> 
> Thus, we are now forbidding any coin merges but still allowing coin
> splits.  To avoid ultimate splitting into the dust, we will also require
> that all private coins be issued in one of a small number of
> denominations.  Only integer number of “banknotes” can be transferred, the
> input and output amounts must therefore be divisible by the denomination.
> For example, an input of amount 700, denomination 100, can be split into
> outputs 400 and 300, but not into 450 and 250.  To send a payment, the
> payer has to pick the unspent outputs of the highest denomination first,
> then the second highest, and so on, like we already do when we pay in cash.
> 
> With fixed denominations and one input per transaction, coin histories
> still grow, but only linearly, which should not be a concern in regard to
> scalability given that all relevant computing resources still grow
> exponentially.  The histories need to be stored only by the current owner
> of the coin, not every bitcoin node.  This is a fairer allocation of
> costs.  Regarding privacy, coin histories do expose private transactions
> (or rather parts thereof, since a typical payment will likely consist of
> several transactions due to one-input-per-transaction rule) of past coin
> owners to the future ones, and that exposure grows linearly with time, but
> it is still much much better than having every transaction immediately on
> the public blockchain.  Also, the value of this information for potential
> adversaries arguably decreases with time.
> 
> There is one technical nuance that I omitted above to avoid distraction.
>  Unlike regular bitcoin transactions, every output in a private payment
> must also include a blinding factor, which is just a random string.  When
> the output is spent, the corresponding spend proof will therefore depend on
> this blinding factor (remember that spend proof is just a hash of the
> output).  Without a blinding factor, it would be feasible to pre-image the
> spend proof and reveal the output being spent as the search space of all
> possible outputs is rather small.
> 
> To issue the new private coin, one can burn regular BTC by sending it to
> one of several unspendable bitcoin addresses, one address per denomination.
>  Burning BTC would entitle one to an equal amount of the new private coin,
> let’s call it *black bitcoin*, or *BBC*.
> 
> Then BBC would be transferred from user to user by:
> 1. creating a private transaction, which consists of one input and several
> outputs;
> 2. storing the hash of the transaction and the spend proof of the consumed
> output into the blockchain in an OP_RETURN (the sender pays the
> corresponding fees in regular BTC)
> 3. sending the transaction, together with the history leading to its input,
> directly to the payee over a private communication channel.  The first
> entry of the history must be a bitcoin transaction that burned BTC to issue
> an equal amount of BCC.
> 
> To verify the payment, the payee:
> 1. makes sure that the amount of the input matches the sum of outputs, and
> all are divisible by the denomination
> 2. calculates the hash of the private transaction
> 3. looks up an OP_RETURN that includes this hash and is signed by the
> payee.  If there is more than one, the one that comes in the earlier block
> prevails.
> 4. calculates the spend proof and makes sure that it is included in the
> same OP_RETURN
> 5. makes sure the same spend proof is not included anywhere in the same or
> earlier blocks (that is, the coin was not spent before).  Only transactions
> by the same author are searched.
> 6. repeats the same steps for every entry in the history, except the first
> entry, which should be a valid burning transaction.
> 
> To facilitate exchange of private transaction data, the bitcoin network
> protocol can be extended with a new message type.  Unfortunately, it lacks
> encryption, hence private payments are really private only when bitcoin is
> used over tor.
> 
> There are a few limitations that ought to be mentioned:
> 1. After user A sends a private payment to user B, user A will know what
> the spend proof is going to be when B decides to spend the coin.
>  Therefore, A will know when the coin was spent by B, but nothing more.
>  Neither the new owner of the coin, nor its future movements will be known
> to A.
> 2. Over time, larger outputs will likely be split into many smaller
> outputs, whose amounts are not much greater than their denominations.
> You’ll have to combine more inputs to send the same amount.  When you want
> to send a very large amount that is much greater than the highest available
> denomination, you’ll have to send a lot of private transactions, your
> bitcoin transaction with so many OP_RETURNs will stand out, and their
> number will roughly indicate the total amount.  This kind of privacy
> leakage, however it applies to a small number of users, is easy to avoid by
> using multiple addresses and storing a relatively small amount on each
> address.
> 3. Exchanges and large merchants will likely accumulate large coin
> histories.  Although fragmented, far from complete, and likely outdated, it
> is still something to bear in mind.
> 
> No hard or soft fork is required, BBC is just a separate privacy preserving
> currency on top of bitcoin blockchain, and the same private keys and
> addresses are used for both BBC and the base currency BTC.  Every BCC
> transaction must be enclosed into by a small BTC transaction that stores
> the OP_RETURNs and pays for the fees.
> 
> Are there any flaws in this design?
> 
> Originally posted to BCT https://bitcointalk.org/index.php?topic=1574508.0,
> but got no feedback so far, apparently everybody was consumed with bitfinex
> drama and now mimblewimble.
> 
> Tony

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-- 
Henning Kopp
Institute of Distributed Systems
Ulm University, Germany

Office: O27 - 3402
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