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From: Eric Voskuil <eric@voskuil.org>
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Date: Mon, 5 Jul 2021 16:32:04 -0700
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To: ZmnSCPxj <ZmnSCPxj@protonmail.com>,
 Bitcoin Protocol Discussion <bitcoin-dev@lists.linuxfoundation.org>
Cc: Billy Tetrud <billy.tetrud@gmail.com>
Subject: Re: [bitcoin-dev] Proof of reserves - recording
Precedence: list

If only one could prove that he won=E2=80=99t get into a boating accident.

e

> On Jul 5, 2021, at 16:26, ZmnSCPxj via bitcoin-dev <bitcoin-dev@lists.linu=
xfoundation.org> wrote:
>=20
> =EF=BB=BFGood morning Billy,
>=20
>> I wonder if there would be some way to include the ability to prove balan=
ces held on the lightning network, but I suspect that isn't generally possib=
le.=20
>=20
> Thinking about this in terms of economic logic:
>=20
> Every channel is anchored onchain, and that anchor (the funding txout) is p=
roof of the existence, and size, of the channel.
>=20
> The two participants in the channel can sign a plaintext containing their n=
ode pubkeys and how much each owns.
> One of the participants should provably be the custodian.
>=20
> * If the counterparty is a true third party, it has no incentive to lie ab=
out its money.
>  * Especially if the counterparty is *another* custodian who wants proof-o=
f-reserves, it has every incentive to overreport, but then the first party w=
ill refuse to sign.
>    It has a disincentive to underreport, and would itself refuse to sign a=
 dishonest report that assigns more funds to the first party.
>    The only case that would be acceptable to both custodians would be to h=
onestly report their holdings in the Lightning channel.
> * If the counterparty is a sockpuppet of the custodian, then the entire ch=
annel is owned by the custodian and it would be fairly dumb of he custodian t=
o claim to have less funds than the entire channel.
>=20
> Perhaps a more practical problem is that Lightning channel states change f=
airly quickly, and there are possible race conditions, due to network latenc=
y (remember, both nodes need to sign, meaning both of them need to communica=
te with each other, thus hit by network latency and other race conditions) w=
here a custodian Lightning node is unable to "freeze" a snapshot of its curr=
ent state and make an atomic proof-of-reserves of *all* channels.
>=20
> Regards,
> ZmnSCPxj
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