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From: Runchao Han <runchao.han@monash.edu>
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Subject: Re: [bitcoin-dev] OP_LOOKUP_OUTPUT proposal
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Good morning ZmnSCPxj,

Sorry for the ambiguity of my last email. It was Sunday and I wrote it =
in 1 min on my bed. Let me elaborate what we are thinking of here.



## Analysis on the protocol from Fournier et al.

In this protocol, Bob participates in the swap following the steps =
below:

1. Alice and Bob creates a payment channel on WJT blockchain.
2. Bob creates the WJT transaction using the joint account of Alice and =
Bob, including 1) Bob's input of 1,000,000 WJT, 2) Alice=E2=80=99s input =
for the 10,000 WJT premium. This transaction should be signed by both =
Alice and Bob in order to be valid.
3. Bob signs the WJT transaction and sends the WJT transaction to Alice.
4. Alice signs this WJT transaction. At this stage, Alice has both the =
valid BTC transaction and the valid WJT transaction.
5. Alice broadcasts both the BTC transaction and the WJT transaction.

In a word, Bob is responsible for preparing the WJT transaction, while =
Alice is responsible for preparing the BTC transaction and broadcasting =
both transactions.

Here, if Bob stalls, nothing will happen, because Bob cannot spend the =
10,000 WJT premium without Alice=E2=80=99s signature.
If Alice stalls, you are saying that Bob can spend the input of =
1,000,000 WJT so he does not lose any money.

I have 3 questions on this scheme.

First, I=E2=80=99m not sure how do you define =E2=80=9CAlice stalls=E2=80=9D=
. In this case, Alice can stall by 1) withhold the WJT tx, or 2) =
broadcast BTC/WJT funding txs but withhold the preimage.
If 2), this protocol is okay. But what about 1) i.e. Alice withholds the =
WJT tx? Here, Bob cannot do anything except for closing the payment =
channel and quit.

Second, I=E2=80=99m not sure whether Bob can spend his money in this =
payment channel while the payment channel is still valid.
In Bitcoin, Bob needs to close the payment channel and get back his =
money first, then he can spend the money.

Third, let=E2=80=99s optimistically assume Bob can close this payment =
channel without Alice=E2=80=99s consent.
Now he decides to close this channel if Alice does not broadcast the WJT =
tx all the time.
Alice does not need to pay for the premium if she withholds the WJT tx. =
If Alice decides not to proceed this swap, Bob should close this channel =
and get back 1,000,000 WJT. However, Bob cannot get the 10,000 WJT =
premium.

In conclusion, Alice=E2=80=99s optionality is not free when she =
exercises this option, but is free when she aborts this option.



## What will happen if Alice is responsible for broadcasting both =
funding txs

If Alice is responsible for broadcasting both txs, Alice can always =
abort the swap for free, regardless of how the protocol is designed.
Basically, Bob officially participates in the swap by signing the WJT =
tx.
After Bob participating, if Alice hopes to abort the swap, she can just =
withhold the WJT tx.

In the original Atomic Swap, Bob participates in the swap by signing and =
broadcasting the WJT tx, and Alice cannot withhold Bob=E2=80=99s =
participation.
However, if Alice is responsible for broadcasting Bob=E2=80=99s WJT tx, =
Alice can withhold Bob=E2=80=99s participation by withholding the WJT =
tx.

Therefore, I think for Atomic Swap protocol design, Bob should be =
responsible for broadcasting the WJT tx, otherwise the protocol is =
impossible to be fair to Bob.



Again, sorry for the ambiguity introduced in our last email, and we look =
forward to hearing from you.

Thanks,
Runchao


> On 10 Aug 2019, at 11:01 pm, Runchao Han <runchao.han@monash.edu> =
wrote:
>=20
> If I remember it right, Alice first signs the WJT transaction, sends =
it to Bob, then Bob signs it and makes this transaction valid.
>=20
> If so, there are two problems.
> First, Bob gets the valid tx first, and he can choose not to send it =
to Alice.
> Second, even if Bob honestly sends Alice this tx, Alice cannot fully =
control when to broadcast this to, as Bob also has this transaction.
>=20
> If Bob first signs then Alice signs, Alice still has optionality, as =
she can choose whether to publish this tx and preimage.
>=20
> Runchao
>=20
> On Sat, Aug 10, 2019 at 10:50 PM ZmnSCPxj <ZmnSCPxj@protonmail.com =
<mailto:ZmnSCPxj@protonmail.com>> wrote:
> Good morning Runchao,
>=20
>=20
>=20
>=20
> Sent with ProtonMail Secure Email.
>=20
> =E2=80=90=E2=80=90=E2=80=90=E2=80=90=E2=80=90=E2=80=90=E2=80=90 =
Original Message =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 <mailto:runchao.han@monash.edu>> wrote:
>=20
> > 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 nodes. Also, the execution of OP_LOOKUP_OUTPUT depends on the time =
of verifying 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=9CAlic=
e pays Bob 10,000 WJT; Bob hash-timelocked pays Alice 1,000,000WJT=E2=80=9D=
, where the time lock is T+24.
> > Here, Bob is responsible for broadcasting this tx after confirming =
Alice=E2=80=99s funding transaction on BTC blockchain.
>=20
> No, Bob is not.
>=20
> The signature exchange for the WJT-side funding tx is done by:
>=20
> 1. Alice waits for Bob to provide all its signatures for inputs that =
will fund 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.
>=20
> Alice is the one responsible for broadcasting the funding tx.
>=20
> If Bob stalls, it is not a Bob side option (i.e. Bob cannot stall then =
continue the protocol when the exchange rate moves to its favor) as =
Alice can refuse to sign and broadcast the funding tx once it has =
decided Bob is trolling it, thus Bob cannot force Alice to perform.
>=20
> 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.
>=20
> Regards,
> ZmnSCPxj
>=20
> > In this case, Bob can arbitrage by broadcasting this tx after T+24. =
In this way, Bob receives the 10,000WJT, but Alice cannot redeem =
1,000,000WJT anymore.
> > If the premium (10,000WJT) is also hash-timelocked, Alice can keep =
unraveling 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 =
Alice locks all her money by hashlock.
> > However, Alice cannot lock the premium using hashlock. This gives =
Bob opportunity to arbitrage Alice=E2=80=99s premium.
> >
> > What is implied here is that, where the premium should go strictly =
depends 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 according to your definition.
> >
> > In conclusion, I believe your comments on OP_LOOKUP_OUTPUT =
reasonable, but cannot make sure if the premium mechanism can be =
implemented by using HTLCs.
> >
> > Thanks,
> > Runchao
> >
> > > On 10 Aug 2019, at 12:29 am, ZmnSCPxj ZmnSCPxj@protonmail.com =
<mailto:ZmnSCPxj@protonmail.com> wrote:
> > > Good morning Haoyu LIN et al.,
> > >
> > > > We have investigated this problem in very detail. We analysed =
how profitable 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.org/2019/896 <https://eprint.iacr.org/2019/896>, and =
the related code https://github.com/HAOYUatHZ/fair-atomic-swap =
<https://github.com/HAOYUatHZ/fair-atomic-swap> if interested.
> > > > Several studies have proposed for solving this problem e.g., =
http://diyhpl.us/wiki/transcripts/scalingbitcoin/tokyo-2018/atomic-swaps/ =
<http://diyhpl.us/wiki/transcripts/scalingbitcoin/tokyo-2018/atomic-swaps/=
> and https://coblox.tech/docs/financial_crypto19.pdf =
<https://coblox.tech/docs/financial_crypto19.pdf>. Their basic idea is =
that, the transaction 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 in.
> > > > To solve this, the transaction verifier needs to know the status =
of an dependent transaction. Unfortunately, Bitcoin does not support the =
stateful transaction functionalities. Therefore, we propose the new =
opcode: OP_LOOKUP_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 decide whether Alice or Bob should take the premium =
by `<output> OP_LOOKUP_OUTPUT <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 =
transaction 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 =
transaction enters the mempool.
> > >     Thus it cannot get information about the block it is in.
> > >     Instead, the SCRIPT interpreter can have as input only the =
transaction that is attempting to spend the SCRIPT.
> > >
> > >
> > > In any case:
> > >
> > > > However, this introduces a new problem: Bob can get the premium =
without 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 =
timelocked 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 premium to Bob.
> > > 6.  Alice and Bob generate, but do not sign, a funding transaction =
spending 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 =
itself as it still requires the preimage, and at this point, only Alice =
knows the preimage.
> > >
> > > 9.  Alice and Bob sign the funding transaction and broadcast it.
> > > 10.  Alice completes the claim transaction by adding the preimage =
and broadcasts it.
> > > 11.  Bob sees the preimage on the WJT blockchain and claims the =
BTC using 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 and claim the premium only.
> > > This is basically this proposal: =
https://lists.linuxfoundation.org/pipermail/lightning-dev/2019-January/001=
798.html =
<https://lists.linuxfoundation.org/pipermail/lightning-dev/2019-January/00=
1798.html>
> > > In addition, if you really want the premium to be denominated in =
BTC, I have a more complicated ritual: =
https://lists.linuxfoundation.org/pipermail/lightning-dev/2019-January/001=
795.html =
<https://lists.linuxfoundation.org/pipermail/lightning-dev/2019-January/00=
1795.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
>=20
>=20


--Apple-Mail=_2F88D704-E416-4992-88A9-C3BD700E0DC6
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<html><head><meta http-equiv=3D"Content-Type" content=3D"text/html; =
charset=3Dutf-8"></head><body style=3D"word-wrap: break-word; =
-webkit-nbsp-mode: space; line-break: after-white-space;" class=3D""><div =
dir=3D"auto" style=3D"word-wrap: break-word; -webkit-nbsp-mode: space; =
line-break: after-white-space;" class=3D""><div dir=3D"auto" =
style=3D"word-wrap: break-word; -webkit-nbsp-mode: space; line-break: =
after-white-space;" class=3D"">Good morning ZmnSCPxj,<div class=3D""><br =
class=3D""></div><div class=3D"">Sorry for the ambiguity of my last =
email. It was Sunday and I wrote it in 1 min on my bed. Let me elaborate =
what we are thinking of here.</div><div class=3D""><br =
class=3D""></div><div class=3D""><br class=3D""></div><div class=3D""><br =
class=3D""></div><div class=3D"">## Analysis on the protocol from =
Fournier et al.</div><div class=3D""><br class=3D""></div><div =
class=3D"">In this protocol, Bob participates in the swap following the =
steps below:</div><div class=3D""><br class=3D""></div><div class=3D"">1. =
Alice and Bob creates a payment channel on WJT blockchain.</div><div =
class=3D"">2. Bob creates the WJT transaction using the joint account of =
Alice and Bob, including 1) Bob's input of 1,000,000 WJT, 2) Alice=E2=80=99=
s input for the 10,000 WJT premium. This transaction should be signed by =
both Alice and Bob in order to be valid.</div><div class=3D"">3. Bob =
signs the WJT transaction and sends the WJT transaction to =
Alice.</div><div class=3D"">4. Alice signs this WJT transaction. At this =
stage, Alice has both the valid BTC transaction and the valid WJT =
transaction.</div><div class=3D"">5. Alice broadcasts both the BTC =
transaction and the WJT transaction.</div><div class=3D""><br =
class=3D""></div><div class=3D"">In a word, Bob is responsible for =
preparing the WJT transaction, while Alice is responsible for preparing =
the BTC transaction and broadcasting both transactions.</div><div =
class=3D""><br class=3D""></div><div class=3D"">Here, if Bob stalls, =
nothing will happen, because Bob cannot spend the 10,000 WJT premium =
without Alice=E2=80=99s signature.</div><div class=3D"">If Alice stalls, =
you are saying that Bob can spend the input of 1,000,000 WJT so he does =
not lose any money.</div><div class=3D""><br class=3D""></div><div =
class=3D"">I have 3 questions on this scheme.</div><div class=3D""><br =
class=3D""></div><div class=3D"">First, I=E2=80=99m not sure how do you =
define =E2=80=9CAlice stalls=E2=80=9D. In this case, Alice can stall by =
1) withhold the WJT tx, or 2) broadcast BTC/WJT funding txs but withhold =
the preimage.</div><div class=3D"">If 2), this protocol is okay. But =
what about 1) i.e. Alice withholds the WJT tx? Here, Bob cannot do =
anything except for closing the payment channel and quit.</div><div =
class=3D""><br class=3D""></div><div class=3D"">Second, I=E2=80=99m not =
sure whether Bob can spend his money in this payment channel while the =
payment channel is still valid.</div><div class=3D"">In Bitcoin, Bob =
needs to close the payment channel and get back his money first, then he =
can spend the money.</div><div class=3D""><br class=3D""></div><div =
class=3D"">Third, let=E2=80=99s optimistically assume Bob can close this =
payment channel without Alice=E2=80=99s consent.</div><div class=3D"">Now =
he decides to close this channel if Alice does not broadcast the WJT tx =
all the time.</div><div class=3D"">Alice does not need to pay for the =
premium if she withholds the WJT tx. If Alice decides not to proceed =
this swap, Bob should close this channel and get back 1,000,000 WJT. =
However, Bob cannot get the 10,000 WJT premium.</div><div class=3D""><br =
class=3D""></div><div class=3D"">In conclusion, Alice=E2=80=99s =
optionality is not free when she exercises this option, but is free when =
she aborts this option.</div><div class=3D""><br class=3D""></div><div =
class=3D""><br class=3D""></div><div class=3D""><br class=3D""></div><div =
class=3D"">## What will happen if Alice is responsible for broadcasting =
both funding txs</div><div class=3D""><br class=3D""></div><div =
class=3D"">If Alice is responsible for broadcasting both txs, Alice can =
always abort the swap for free, regardless of how the protocol is =
designed.</div><div class=3D"">Basically, Bob officially participates in =
the swap by signing the WJT tx.</div><div class=3D"">After Bob =
participating, if Alice hopes to abort the swap, she can just withhold =
the WJT tx.</div><div class=3D""><br class=3D""></div><div class=3D"">In =
the original Atomic Swap, Bob participates in the swap by signing and =
broadcasting the WJT tx, and Alice cannot withhold Bob=E2=80=99s =
participation.</div><div class=3D"">However, if Alice is responsible for =
broadcasting Bob=E2=80=99s WJT tx, Alice can withhold Bob=E2=80=99s =
participation by withholding the WJT tx.</div><div class=3D""><br =
class=3D""></div><div class=3D"">Therefore, I think for Atomic Swap =
protocol design, Bob should be responsible for broadcasting the WJT tx, =
otherwise the protocol is impossible to be fair to Bob.</div><div =
class=3D""><br class=3D""></div><div class=3D""><br class=3D""></div><div =
class=3D""><br class=3D""></div><div class=3D"">Again, sorry for the =
ambiguity introduced in our last email, and we look forward to hearing =
from you.</div><div class=3D""><br class=3D""></div><div =
class=3D"">Thanks,</div><div class=3D"">Runchao</div><div class=3D""><br =
class=3D""></div><div class=3D""><br class=3D""></div><div =
class=3D""><div><blockquote type=3D"cite" class=3D""><div class=3D"">On =
10 Aug 2019, at 11:01 pm, Runchao Han &lt;<a =
href=3D"mailto:runchao.han@monash.edu" =
class=3D"">runchao.han@monash.edu</a>&gt; wrote:</div><br =
class=3D"Apple-interchange-newline"><div class=3D""><div class=3D""><div =
dir=3D"auto" class=3D"">If I remember it right, Alice first signs the =
WJT transaction, sends it to Bob, then Bob signs it and makes this =
transaction valid.</div></div><div dir=3D"auto" class=3D""><br =
class=3D""></div><div dir=3D"auto" class=3D"">If so, there are two =
problems.</div><div dir=3D"auto" class=3D"">First, Bob gets the valid tx =
first, and he can choose not to send it to Alice.</div><div dir=3D"auto" =
class=3D"">Second, even if Bob honestly sends Alice this tx, Alice =
cannot fully control when to broadcast this to, as Bob also has this =
transaction.</div><div dir=3D"auto" class=3D""><br class=3D""></div><div =
dir=3D"auto" class=3D"">If Bob first signs then Alice signs, Alice still =
has optionality, as she can choose whether to publish this tx and =
preimage.</div><div dir=3D"auto" class=3D""><br class=3D""></div><div =
dir=3D"auto" class=3D"">Runchao</div><div class=3D""><br class=3D""><div =
class=3D"gmail_quote"><div dir=3D"ltr" class=3D"gmail_attr">On Sat, Aug =
10, 2019 at 10:50 PM ZmnSCPxj &lt;<a =
href=3D"mailto:ZmnSCPxj@protonmail.com" =
class=3D"">ZmnSCPxj@protonmail.com</a>&gt; wrote:<br =
class=3D""></div><blockquote class=3D"gmail_quote" style=3D"margin:0 0 0 =
.8ex;border-left:1px #ccc solid;padding-left:1ex">Good morning =
Runchao,<br class=3D"">
<br class=3D"">
<br class=3D"">
<br class=3D"">
<br class=3D"">
Sent with ProtonMail Secure Email.<br class=3D"">
<br class=3D"">
=E2=80=90=E2=80=90=E2=80=90=E2=80=90=E2=80=90=E2=80=90=E2=80=90 Original =
Message =E2=80=90=E2=80=90=E2=80=90=E2=80=90=E2=80=90=E2=80=90=E2=80=90<br=
 class=3D"">
On Saturday, August 10, 2019 1:44 PM, Runchao Han &lt;<a =
href=3D"mailto:runchao.han@monash.edu" target=3D"_blank" =
class=3D"">runchao.han@monash.edu</a>&gt; wrote:<br class=3D"">
<br class=3D"">
&gt; Hi ZmnSCPxj,<br class=3D"">
&gt;<br class=3D"">
&gt; Thanks for your reply.<br class=3D"">
&gt;<br class=3D"">
&gt; I agree with your opinions about OP_LOOKUP_OUTPUT.<br class=3D"">
&gt; Indeed, the pruning mechanism renders this opcode unrealistic for =
some nodes. Also, the execution of OP_LOOKUP_OUTPUT depends on the time =
of verifying this tx.<br class=3D"">
&gt;<br class=3D"">
&gt; However, I=E2=80=99m concerning of some security issues of your =
mentioned protocol (Alice pays the premium contingently on Bob =
participating).<br class=3D"">
&gt; If I understand it right, Alice and Bob should create a payment =
channel, and mutually construct the funding transaction that =E2=80=9CAlic=
e pays Bob 10,000 WJT; Bob hash-timelocked pays Alice 1,000,000WJT=E2=80=9D=
, where the time lock is T+24.<br class=3D"">
&gt; Here, Bob is responsible for broadcasting this tx after confirming =
Alice=E2=80=99s funding transaction on BTC blockchain.<br class=3D"">
<br class=3D"">
No, Bob is not.<br class=3D"">
<br class=3D"">
The signature exchange for the WJT-side funding tx is done by:<br =
class=3D"">
<br class=3D"">
1. Alice waits for Bob to provide all its signatures for inputs that =
will fund the 1,000,000 WJT payout.<br class=3D"">
2. Alice signs its inputs that will fund the 10,000 WJT premium.<br =
class=3D"">
3. Alice broadacasts the completely signed funding tx.<br class=3D"">
<br class=3D"">
Alice is the one responsible for broadcasting the funding tx.<br =
class=3D"">
<br class=3D"">
If Bob stalls, it is not a Bob side option (i.e. Bob cannot stall then =
continue the protocol when the exchange rate moves to its favor) as =
Alice can refuse to sign and broadcast the funding tx once it has =
decided Bob is trolling it, thus Bob cannot force Alice to perform.<br =
class=3D"">
<br class=3D"">
If Alice stalls, Bob can double-spend one of its inputs at a low =
feerate.<br class=3D"">
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.<br class=3D"">
<br class=3D"">
Regards,<br class=3D"">
ZmnSCPxj<br class=3D"">
<br class=3D"">
&gt; In this case, Bob can arbitrage by broadcasting this tx after T+24. =
In this way, Bob receives the 10,000WJT, but Alice cannot redeem =
1,000,000WJT anymore.<br class=3D"">
&gt; If the premium (10,000WJT) is also hash-timelocked, Alice can keep =
unraveling the preimage, which makes the atomic swap still =
premium-free.<br class=3D"">
&gt;<br class=3D"">
&gt; 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.<br class=3D"">
&gt; Also, Alice will lose nothing regardless of how Bob behaves, =
because Alice locks all her money by hashlock.<br class=3D"">
&gt; However, Alice cannot lock the premium using hashlock. This gives =
Bob opportunity to arbitrage Alice=E2=80=99s premium.<br class=3D"">
&gt;<br class=3D"">
&gt; What is implied here is that, where the premium should go strictly =
depends on where Bob=E2=80=99s asset goes.<br class=3D"">
&gt; 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.<br class=3D"">
&gt; Unfortunately, the =E2=80=9Cx=E2=80=9D here is also an external =
state according to your definition.<br class=3D"">
&gt;<br class=3D"">
&gt; In conclusion, I believe your comments on OP_LOOKUP_OUTPUT =
reasonable, but cannot make sure if the premium mechanism can be =
implemented by using HTLCs.<br class=3D"">
&gt;<br class=3D"">
&gt; Thanks,<br class=3D"">
&gt; Runchao<br class=3D"">
&gt;<br class=3D"">
&gt; &gt; On 10 Aug 2019, at 12:29 am, ZmnSCPxj <a =
href=3D"mailto:ZmnSCPxj@protonmail.com" target=3D"_blank" =
class=3D"">ZmnSCPxj@protonmail.com</a> wrote:<br class=3D"">
&gt; &gt; Good morning Haoyu LIN et al.,<br class=3D"">
&gt; &gt;<br class=3D"">
&gt; &gt; &gt; We have investigated this problem in very detail. We =
analysed how profitable 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 <a href=3D"https://eprint.iacr.org/2019/896" =
rel=3D"noreferrer" target=3D"_blank" =
class=3D"">https://eprint.iacr.org/2019/896</a>, and the related code <a =
href=3D"https://github.com/HAOYUatHZ/fair-atomic-swap" rel=3D"noreferrer" =
target=3D"_blank" =
class=3D"">https://github.com/HAOYUatHZ/fair-atomic-swap</a> if =
interested.<br class=3D"">
&gt; &gt; &gt; Several studies have proposed for solving this problem =
e.g., <a =
href=3D"http://diyhpl.us/wiki/transcripts/scalingbitcoin/tokyo-2018/atomic=
-swaps/" rel=3D"noreferrer" target=3D"_blank" =
class=3D"">http://diyhpl.us/wiki/transcripts/scalingbitcoin/tokyo-2018/ato=
mic-swaps/</a> and <a =
href=3D"https://coblox.tech/docs/financial_crypto19.pdf" =
rel=3D"noreferrer" target=3D"_blank" =
class=3D"">https://coblox.tech/docs/financial_crypto19.pdf</a>. Their =
basic idea is that, the transaction 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 in.<br class=3D"">
&gt; &gt; &gt; To solve this, the transaction verifier needs to know the =
status of an dependent transaction. Unfortunately, Bitcoin does not =
support the stateful transaction functionalities. Therefore, we propose =
the new opcode: OP_LOOKUP_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 decide whether Alice or Bob =
should take the premium by `&lt;output&gt; OP_LOOKUP_OUTPUT =
&lt;pubkeyhash&gt; OP_EQUALVERIFY`.<br class=3D"">
&gt; &gt;<br class=3D"">
&gt; &gt; I believe an unsaid principle of SCRIPT opcode design is =
this:<br class=3D"">
&gt; &gt;<br class=3D"">
&gt; &gt; -&nbsp; &nbsp;No SCRIPT opcode can look at anything that is =
not in the transaction spending from the SCRIPT.<br class=3D"">
&gt; &gt;<br class=3D"">
&gt; &gt; This issue underlies the previous `OP_PUBREF` proposal =
also.<br class=3D"">
&gt; &gt; The reason for this is:<br class=3D"">
&gt; &gt;<br class=3D"">
&gt; &gt; -&nbsp; &nbsp;We support a pruning mode, where in only the =
UTXO set is retained.<br class=3D"">
&gt; &gt;&nbsp; &nbsp; &nbsp;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.<br class=3D"">
&gt; &gt;<br class=3D"">
&gt; &gt; -&nbsp; &nbsp;The SCRIPT interpreter is run only once, at the =
time the transaction enters the mempool.<br class=3D"">
&gt; &gt;&nbsp; &nbsp; &nbsp;Thus it cannot get information about the =
block it is in.<br class=3D"">
&gt; &gt;&nbsp; &nbsp; &nbsp;Instead, the SCRIPT interpreter can have as =
input only the transaction that is attempting to spend the SCRIPT.<br =
class=3D"">
&gt; &gt;<br class=3D"">
&gt; &gt;<br class=3D"">
&gt; &gt; In any case:<br class=3D"">
&gt; &gt;<br class=3D"">
&gt; &gt; &gt; However, this introduces a new problem: Bob can get the =
premium without paying anything, by never participating in.<br class=3D"">=

&gt; &gt;<br class=3D"">
&gt; &gt; Premium payment can be made contingent on Bob =
participating.<br class=3D"">
&gt; &gt; Of course, it does mean the premium is paid using the =
destination coin.<br class=3D"">
&gt; &gt; It also requires the destination coin to support SegWit.<br =
class=3D"">
&gt; &gt; Let me explain by this:<br class=3D"">
&gt; &gt;<br class=3D"">
&gt; &gt; 1.&nbsp; Alice and Bob agree on swap parameters:<br class=3D"">
&gt; &gt;<br class=3D"">
&gt; &gt; -&nbsp; &nbsp;Alice will exchange 1 BTC for 1,000,000 WJT from =
Bob.<br class=3D"">
&gt; &gt; -&nbsp; &nbsp;Alice will pay 10,000 WJT as premium to Bob.<br =
class=3D"">
&gt; &gt; -&nbsp; &nbsp;Alice will lock BTC for 48 hours.<br class=3D"">
&gt; &gt; -&nbsp; &nbsp;Bob will lock WJT for 24 hours.<br class=3D"">
&gt; &gt; -&nbsp; &nbsp;The protocol will start at particular time T.<br =
class=3D"">
&gt; &gt;<br class=3D"">
&gt; &gt; 2.&nbsp; Alice generates a preimage+hash.<br class=3D"">
&gt; &gt; 3.&nbsp; Alice pays 1 BTC to a HTLC with hashlock going to Bob =
and timelocked at T+48 going to Alice.<br class=3D"">
&gt; &gt; 4.&nbsp; Alice presents above UTXO to Bob.<br class=3D"">
&gt; &gt; 5.&nbsp; Alice reveals the WJT UTXOs to be spent to pay for =
the 10,000 WJT premium to Bob.<br class=3D"">
&gt; &gt; 6.&nbsp; Alice and Bob generate, but do not sign, a funding =
transaction spending some of Bob coin as well as the premium coin from =
Alice.<br class=3D"">
&gt; &gt;&nbsp; &nbsp; &nbsp;This pays out to 1,010,000 WJT (the value =
plus the premium) HTLC.<br class=3D"">
&gt; &gt;&nbsp; &nbsp; &nbsp;The hashlock branch requires not just =
Alice, but also Bob.<br class=3D"">
&gt; &gt;&nbsp; &nbsp; &nbsp;The timelock branch at T+24 just requires =
Bob.<br class=3D"">
&gt; &gt;<br class=3D"">
&gt; &gt; 7.&nbsp; Alice and Bob generate the claim transaction.<br =
class=3D"">
&gt; &gt;&nbsp; &nbsp; &nbsp;This spends the funding transaction HTLC =
output and pays out 1,000,000 WJT to Alice and 10,000 WJT to Bob.<br =
class=3D"">
&gt; &gt;<br class=3D"">
&gt; &gt; 8.&nbsp; Alice and Bob sign the claim transaction.<br =
class=3D"">
&gt; &gt;&nbsp; &nbsp; &nbsp;This does not allow Bob to make the claim =
transaction valid by itself as it still requires the preimage, and at =
this point, only Alice knows the preimage.<br class=3D"">
&gt; &gt;<br class=3D"">
&gt; &gt; 9.&nbsp; Alice and Bob sign the funding transaction and =
broadcast it.<br class=3D"">
&gt; &gt; 10.&nbsp; Alice completes the claim transaction by adding the =
preimage and broadcasts it.<br class=3D"">
&gt; &gt; 11.&nbsp; Bob sees the preimage on the WJT blockchain and =
claims the BTC using the preimage.<br class=3D"">
&gt; &gt;<br class=3D"">
&gt; &gt; 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.<br class=3D"">
&gt; &gt; After step 9, Bob has been forced to participate and cannot =
back out and claim the premium only.<br class=3D"">
&gt; &gt; This is basically this proposal: <a =
href=3D"https://lists.linuxfoundation.org/pipermail/lightning-dev/2019-Jan=
uary/001798.html" rel=3D"noreferrer" target=3D"_blank" =
class=3D"">https://lists.linuxfoundation.org/pipermail/lightning-dev/2019-=
January/001798.html</a><br class=3D"">
&gt; &gt; In addition, if you really want the premium to be denominated =
in BTC, I have a more complicated ritual: <a =
href=3D"https://lists.linuxfoundation.org/pipermail/lightning-dev/2019-Jan=
uary/001795.html" rel=3D"noreferrer" target=3D"_blank" =
class=3D"">https://lists.linuxfoundation.org/pipermail/lightning-dev/2019-=
January/001795.html</a><br class=3D"">
&gt; &gt; 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.<br =
class=3D"">
&gt; &gt; Thus, I believe there is no need to add `OP_LOOKUP_OUTPUT`.<br =
class=3D"">
&gt; &gt; Regards,<br class=3D"">
&gt; &gt; ZmnSCPxj<br class=3D"">
<br class=3D"">
<br class=3D"">
</blockquote></div></div>
</div></blockquote></div><br class=3D""></div></div></div></body></html>=

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