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To: Runchao Han <runchao.han@monash.edu>
From: ZmnSCPxj <ZmnSCPxj@protonmail.com>
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Cc: Bitcoin Protocol Discussion <bitcoin-dev@lists.linuxfoundation.org>,
	"jiangshan.yu@monash.edu" <jiangshan.yu@monash.edu>
Subject: Re: [bitcoin-dev] OP_LOOKUP_OUTPUT proposal
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Good morning Runchao,




Sent with ProtonMail Secure Email.

=E2=80=90=E2=80=90=E2=80=90=E2=80=90=E2=80=90=E2=80=90=E2=80=90 Original Me=
ssage =E2=80=90=E2=80=90=E2=80=90=E2=80=90=E2=80=90=E2=80=90=E2=80=90
On Saturday, August 10, 2019 1:44 PM, Runchao Han <runchao.han@monash.edu> =
wrote:

> Hi ZmnSCPxj,
>
> Thanks for your reply.
>
> I agree with your opinions about OP_LOOKUP_OUTPUT.
> Indeed, the pruning mechanism renders this opcode unrealistic for some no=
des. Also, the execution of OP_LOOKUP_OUTPUT depends on the time of verifyi=
ng this tx.
>
> However, I=E2=80=99m concerning of some security issues of your mentioned=
 protocol (Alice pays the premium contingently on Bob participating).
> If I understand it right, Alice and Bob should create a payment channel, =
and mutually construct the funding transaction that =E2=80=9CAlice pays Bob=
 10,000 WJT; Bob hash-timelocked pays Alice 1,000,000WJT=E2=80=9D, where th=
e time lock is T+24.
> Here, Bob is responsible for broadcasting this tx after confirming Alice=
=E2=80=99s funding transaction on BTC blockchain.

No, Bob is not.

The signature exchange for the WJT-side funding tx is done by:

1. Alice waits for Bob to provide all its signatures for inputs that will f=
und the 1,000,000 WJT payout.
2. Alice signs its inputs that will fund the 10,000 WJT premium.
3. Alice broadacasts the completely signed funding tx.

Alice is the one responsible for broadcasting the funding tx.

If Bob stalls, it is not a Bob side option (i.e. Bob cannot stall then cont=
inue the protocol when the exchange rate moves to its favor) as Alice can r=
efuse to sign and broadcast the funding tx once it has decided Bob is troll=
ing it, thus Bob cannot force Alice to perform.

If Alice stalls, Bob can double-spend one of its inputs at a low feerate.
This either aborts the protocol, or if Alice then broadcasts the funding tx=
 at the pre-agreed feerate and it is confirmed, the premium is now already =
paid to Bob.

Regards,
ZmnSCPxj

> In this case, Bob can arbitrage by broadcasting this tx after T+24. In th=
is way, Bob receives the 10,000WJT, but Alice cannot redeem 1,000,000WJT an=
ymore.
> If the premium (10,000WJT) is also hash-timelocked, Alice can keep unrave=
ling the preimage, which makes the atomic swap still premium-free.
>
> In the original atomic swap, Bob is incentivised to broadcast his funding=
 transaction, otherwise he may miss the opportunity to redeem Alice=
=E2=80=99s asset.
> Also, Alice will lose nothing regardless of how Bob behaves, because Alic=
e locks all her money by hashlock.
> However, Alice cannot lock the premium using hashlock. This gives Bob opp=
ortunity to arbitrage Alice=E2=80=99s premium.
>
> What is implied here is that, where the premium should go strictly depend=
s on where Bob=E2=80=99s asset goes.
> If the Bitcoin=E2=80=99s timelock can be =E2=80=9Crelative=E2=80=9D (e.g.=
 the timestamp can be x+24 where x is the timestamp of the block with this =
transaction), I think this protocol works.
> Unfortunately, the =E2=80=9Cx=E2=80=9D here is also an external state acc=
ording to your definition.
>
> In conclusion, I believe your comments on OP_LOOKUP_OUTPUT reasonable, bu=
t cannot make sure if the premium mechanism can be implemented by using HTL=
Cs.
>
> Thanks,
> Runchao
>
> > On 10 Aug 2019, at 12:29 am, ZmnSCPxj ZmnSCPxj@protonmail.com wrote:
> > Good morning Haoyu LIN et al.,
> >
> > > We have investigated this problem in very detail. We analysed how pro=
fitable the arbitrage can be given the default timelock setting (24/48 hrs)=
. Our result shows that the profit can be approximately 1% ~ 2.3%, which is=
 non-negligible compared with 0.3% for stock market. This can be attractive=
 as it's totally risk-free. Please refer to our paper https://eprint.iacr.o=
rg/2019/896, and the related code https://github.com/HAOYUatHZ/fair-atomic-=
swap if interested.
> > > Several studies have proposed for solving this problem e.g., http://d=
iyhpl.us/wiki/transcripts/scalingbitcoin/tokyo-2018/atomic-swaps/ and https=
://coblox.tech/docs/financial_crypto19.pdf. Their basic idea is that, the t=
ransaction for the premium needs to be locked with the same secret hash but=
 with a flipped payout, i.e. when redeemed with the secret, the money goes =
back to Alice and after timelock, the premium goes to Bob as a compensation=
 for Alice not revealing the secret. However, this introduces a new problem=
: Bob can get the premium without paying anything, by never participating i=
n.
> > > To solve this, the transaction verifier needs to know the status of a=
n dependent transaction. Unfortunately, Bitcoin does not support the statef=
ul transaction functionalities. Therefore, we propose the new opcode: OP_LO=
OKUP_OUTPUT. It takes the id of an output, and produces the address of the =
output=E2=80=99s owner. With OP_LOOKUP_OUTPUT, the Bitcoin script can decid=
e whether Alice or Bob should take the premium by `<output> OP_LOOKUP_OUTPU=
T <pubkeyhash> OP_EQUALVERIFY`.
> >
> > I believe an unsaid principle of SCRIPT opcode design is this:
> >
> > -   No SCRIPT opcode can look at anything that is not in the transactio=
n spending from the SCRIPT.
> >
> > This issue underlies the previous `OP_PUBREF` proposal also.
> > The reason for this is:
> >
> > -   We support a pruning mode, where in only the UTXO set is retained.
> >     If `OP_LOOKUP_OUTPUT` exists, we cannot prune, as `OP_LOOKUP_OUTPUT=
` might refer to a TXO that has been spent in very early historical blocks.
> >
> > -   The SCRIPT interpreter is run only once, at the time the transactio=
n enters the mempool.
> >     Thus it cannot get information about the block it is in.
> >     Instead, the SCRIPT interpreter can have as input only the transact=
ion that is attempting to spend the SCRIPT.
> >
> >
> > In any case:
> >
> > > However, this introduces a new problem: Bob can get the premium witho=
ut paying anything, by never participating in.
> >
> > Premium payment can be made contingent on Bob participating.
> > Of course, it does mean the premium is paid using the destination coin.
> > It also requires the destination coin to support SegWit.
> > Let me explain by this:
> >
> > 1.  Alice and Bob agree on swap parameters:
> >
> > -   Alice will exchange 1 BTC for 1,000,000 WJT from Bob.
> > -   Alice will pay 10,000 WJT as premium to Bob.
> > -   Alice will lock BTC for 48 hours.
> > -   Bob will lock WJT for 24 hours.
> > -   The protocol will start at particular time T.
> >
> > 2.  Alice generates a preimage+hash.
> > 3.  Alice pays 1 BTC to a HTLC with hashlock going to Bob and timelocke=
d at T+48 going to Alice.
> > 4.  Alice presents above UTXO to Bob.
> > 5.  Alice reveals the WJT UTXOs to be spent to pay for the 10,000 WJT p=
remium to Bob.
> > 6.  Alice and Bob generate, but do not sign, a funding transaction spen=
ding some of Bob coin as well as the premium coin from Alice.
> >     This pays out to 1,010,000 WJT (the value plus the premium) HTLC.
> >     The hashlock branch requires not just Alice, but also Bob.
> >     The timelock branch at T+24 just requires Bob.
> >
> > 7.  Alice and Bob generate the claim transaction.
> >     This spends the funding transaction HTLC output and pays out 1,000,=
000 WJT to Alice and 10,000 WJT to Bob.
> >
> > 8.  Alice and Bob sign the claim transaction.
> >     This does not allow Bob to make the claim transaction valid by itse=
lf as it still requires the preimage, and at this point, only Alice knows t=
he preimage.
> >
> > 9.  Alice and Bob sign the funding transaction and broadcast it.
> > 10.  Alice completes the claim transaction by adding the preimage and b=
roadcasts it.
> > 11.  Bob sees the preimage on the WJT blockchain and claims the BTC usi=
ng the preimage.
> >
> > If Bob stalls at step 8, then there is no way to claim the premium, as =
the funding transaction (which is the source of the claim transaction that =
pays the premium) is not valid yet.
> > After step 9, Bob has been forced to participate and cannot back out an=
d claim the premium only.
> > This is basically this proposal: https://lists.linuxfoundation.org/pipe=
rmail/lightning-dev/2019-January/001798.html
> > In addition, if you really want the premium to be denominated in BTC, I=
 have a more complicated ritual: https://lists.linuxfoundation.org/pipermai=
l/lightning-dev/2019-January/001795.html
> > The described ritual only sets up the American Call Option, but by the =
time it has been set up, the premium has been paid already and the rest of =
the execution is claiming the American Call Option.
> > Thus, I believe there is no need to add `OP_LOOKUP_OUTPUT`.
> > Regards,
> > ZmnSCPxj