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From: Tony Churyumoff <tony991@gmail.com>
Date: Wed, 10 Aug 2016 10:51:34 +0300
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Subject: [bitcoin-dev] Fwd: Hiding entire content of on-chain transactions
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> That is a good point. As you said, it puts a lot more burden on the coin
> holders. One big downside would be data management. Instead of simply
> backing up a single HD private key, the user would have to back up entire
> histories of every output that has been sent to them if they want to secu=
re
> their funds.

You are correct.  It is somewhat similar to bearer assets: if you lose
the histories, you lose money.

> It also requires them to be online to receive payments, and I think findi=
ng
> a method of sending the private message containing the coin's history is
> going to be a bit of a challenge. If you connect directly to the recipien=
t
> to convey the information through traditional channels, anonymity is lost=
.
> Sending messages through the bitcoin network is one option to protect
> anonymity, but without active pathfinding there's no guarantee the payee
> will even get the message. I'm assuming you'd have to essentially replace=
 tx
> messages with encrypted BBC histories, and mempools are quite full as it =
is.
>
> Tony, do you have any more thoughts on exactly how users would convey the
> private messages to payees?

You are right conveying the private messages is not trivial.  While we
can adapt the existing bitcoin network protocol for a limited set of
use cases, such as both parties being online at the same time and
connected directly, BBC would work best if we design a whole new
communication layer specifically for conveying private messages.  We
could route the end-to-end encrypted messages through hubs who are
constantly online and would store and forward the messages, thus the
peers don't have to be online at the same time and don't have to
connect directly.  The hubs could simultaneously serve as lightening
network hubs.


2016-08-09 3:03 GMT+03:00 James MacWhyte <macwhyte@gmail.com>:
> That is a good point. As you said, it puts a lot more burden on the coin
> holders. One big downside would be data management. Instead of simply
> backing up a single HD private key, the user would have to back up entire
> histories of every output that has been sent to them if they want to secu=
re
> their funds.
>
> It also requires them to be online to receive payments, and I think findi=
ng
> a method of sending the private message containing the coin's history is
> going to be a bit of a challenge. If you connect directly to the recipien=
t
> to convey the information through traditional channels, anonymity is lost=
.
> Sending messages through the bitcoin network is one option to protect
> anonymity, but without active pathfinding there's no guarantee the payee
> will even get the message. I'm assuming you'd have to essentially replace=
 tx
> messages with encrypted BBC histories, and mempools are quite full as it =
is.
>
> Tony, do you have any more thoughts on exactly how users would convey the
> private messages to payees?
>
> On Mon, Aug 8, 2016 at 4:42 PM Tony Churyumoff <tony991@gmail.com> wrote:
>>
>> The whole point is in preventing every third party, including miners, fr=
om
>> seeing the details of what is being spent and how.  The burden of
>> verification is shifted to the owners of the coin (which is fair).
>>
>> In fact we could have miners recognize spend proofs and check that the
>> same spend proof is not entered into the blockchain more than once (whic=
h
>> would be a sign of double spend), but it is not required.  The coin owne=
rs
>> can already do that themselves.
>>
>> 2016-08-09 0:41 GMT+03:00 James MacWhyte <macwhyte@gmail.com>:
>>>
>>> Wouldn't you lose the ability to assume transactions in the blockchain
>>> are verified as valid, since miners can't see the details of what is be=
ing
>>> spent and how? I feel like this ability is bitcoin's greatest asset, an=
d by
>>> removing it you're creating an altcoin different enough to not be conne=
cted
>>> to/supported by the main bitcoin project.
>>>
>>>
>>> On Mon, Aug 8, 2016, 09:13 Tony Churyumoff via bitcoin-dev
>>> <bitcoin-dev@lists.linuxfoundation.org> wrote:
>>>>
>>>> Hi Henning,
>>>>
>>>> 1. The fees are paid by the enclosing BTC transaction.
>>>> 2. The hash is encoded into an OP_RETURN.
>>>>
>>>> > Regarding the blinding factor, I think you could just use HMAC.
>>>> How exactly?
>>>>
>>>> Tony
>>>>
>>>>
>>>> 2016-08-08 18:47 GMT+03:00 Henning Kopp <henning.kopp@uni-ulm.de>:
>>>>>
>>>>> 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 txou=
t
>>>>> 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 input=
s
>>>>> > 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 publ=
ic
>>>>> > 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=E2=80=99ll c=
all 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 rejec=
t
>>>>> > 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, th=
en
>>>>> > 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 owne=
r
>>>>> > 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 h=
is
>>>>> > own
>>>>> > transaction.
>>>>> >
>>>>> > If we apply the existing bitcoin design that allows multiple inputs
>>>>> > and
>>>>> > multiple outputs per transaction, the history of ownership transfer=
s
>>>>> > would
>>>>> > grow exponentially.  Indeed, if we take any regular bitcoin output
>>>>> > and try
>>>>> > to track its history back to coinbase, our history will branch ever=
y
>>>>> > 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=E2=80=99ll
>>>>> > have to track two or more histories, for each respective input.
>>>>> > Those
>>>>> > histories will branch again, and the total number of history entrie=
s
>>>>> > 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 step=
s
>>>>> > 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 eac=
h
>>>>> > private transaction to have exactly one input (i.e. to consume
>>>>> > exactly one
>>>>> > previous output).  This means that when we track a coin=E2=80=99s h=
istory
>>>>> > 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 =E2=80=9Cbanknotes=E2=80=9D =
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 o=
f
>>>>> > costs.  Regarding privacy, coin histories do expose private
>>>>> > transactions
>>>>> > (or rather parts thereof, since a typical payment will likely consi=
st
>>>>> > 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 t=
he
>>>>> > 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 o=
f
>>>>> > 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 privat=
e
>>>>> > coin,
>>>>> > let=E2=80=99s 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 it=
s
>>>>> > 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 t=
he
>>>>> > payee.  If there is more than one, the one that comes in the earlie=
r
>>>>> > 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 th=
e
>>>>> > 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, i=
t
>>>>> > 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 b=
e
>>>>> > known
>>>>> > to A.
>>>>> > 2. Over time, larger outputs will likely be split into many smaller
>>>>> > outputs, whose amounts are not much greater than their denomination=
s.
>>>>> > You=E2=80=99ll 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=E2=80=99ll have to send a lot of private transact=
ions, your
>>>>> > bitcoin transaction with so many OP_RETURNs will stand out, and the=
ir
>>>>> > number will roughly indicate the total amount.  This kind of privac=
y
>>>>> > 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 an=
d
>>>>> > addresses are used for both BBC and the base currency BTC.  Every B=
CC
>>>>> > 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=3D1574508.0,
>>>>> > but got no feedback so far, apparently everybody was consumed with
>>>>> > bitfinex
>>>>> > drama and now mimblewimble.
>>>>> >
>>>>> > Tony
>>>>>
>>>>> > _______________________________________________
>>>>> > bitcoin-dev mailing list
>>>>> > bitcoin-dev@lists.linuxfoundation.org
>>>>> > https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-dev
>>>>>
>>>>>
>>>>> --
>>>>> Henning Kopp
>>>>> Institute of Distributed Systems
>>>>> Ulm University, Germany
>>>>>
>>>>> Office: O27 - 3402
>>>>> Phone: +49 731 50-24138
>>>>> Web: http://www.uni-ulm.de/in/vs/~kopp
>>>>
>>>>
>>>> _______________________________________________
>>>> bitcoin-dev mailing list
>>>> bitcoin-dev@lists.linuxfoundation.org
>>>> https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-dev
>>
>>
>