Subject: Re: [bitcoin-dev] [Lightning-dev] Batch exchange withdrawal to lightning requires covenants

From: Bastien TEINTURIER <[email-masked]>
Date: Thu, 19 Oct 2023 09:35:23 +0200

Hi Antoine,

> If I'm correct, two users can cooperate maliciously against the batch
> withdrawal transactions by re-signing a CPFP from 2-of-2 and
> broadcasting the batch withdrawal as a higher-feerate package / high
> fee package and then evicting out the CPFP.

Yes, they can, and any user could also double-spend the batch using a
commit tx spending from the previous funding output. Participants must
expect that this may happen, that's what I mentioned previously that
you cannot use 0-conf on that splice transaction. But apart from that,
it acts as a regular splice: participants must watch for double-spends
(as discussed in the previous messages) while waiting for confirmations.

> If the batch withdrawal has been signed with 0-fee thanks to the
> nversion=3 policy exemption, it will be evicted out of the mempool.
> A variant of a replacement cycling attack.

I don't think this should use nVersion=3 and pay 0 fees. On the contrary
this is a "standard" transaction that should use a reasonable feerate
and nVersion=2, that's why I don't think this comment applies.

Cheers,
Bastien

Le mer. 18 oct. 2023 à 20:04, Antoine Riard <[email-masked]> a
écrit :

> Hi Bastien,
>
> Thanks for the answer.
>
> If I understand correctly the protocol you're describing you're aiming to
> enable batched withdrawals where a list of users are being sent funds from
> an exchange directly in a list of channel funding outputs ("splice-out").
> Those channels funding outputs are 2-of-2, between two lambda users or e.g
> a lambda user and a LSP.
>
> If I'm correct, two users can cooperate maliciously against the batch
> withdrawal transactions by re-signing a CPFP from 2-of-2 and broadcasting
> the batch withdrawal as a higher-feerate package / high fee package and
> then evicting out the CPFP.
>
> If the batch withdrawal has been signed with 0-fee thanks to the
> nversion=3 policy exemption, it will be evicted out of the mempool. A
> variant of a replacement cycling attack.
>
> I think this more or less matches the test I'm pointing to you which is on
> non-deployed package acceptance code:
>
> https://github.com/ariard/bitcoin/commit/19d61fa8cf22a5050b51c4005603f43d72f1efcf
>
> Please correct me if I'm wrong or missing assumptions. Agree with you on
> the assumptions that the exchange does not have an incentive to
> double-spend its own withdrawal transactions, or if all the batched funding
> outputs are shared with a LSP, malicious collusion is less plausible.
>
> Best,
> Antoine
>
> Le mer. 18 oct. 2023 à 15:35, Bastien TEINTURIER <[email-masked]> a
> écrit :
>
>> Hey Z-man, Antoine,
>>
>> Thank you for your feedback, responses inline.
>>
>> z-man:
>>
>> > Then if I participate in a batched splice, I can disrupt the batched
>> > splice by broadcasting the old state and somehow convincing miners to
>> > confirm it before the batched splice.
>>
>> Correct, I didn't mention it in my post but batched splices cannot use
>> 0-conf, the transaction must be confirmed to remove the risk of double
>> spends using commit txs associated with the previous funding tx.
>>
>> But interestingly, with the protocol I drafted, the LSP can finalize and
>> broadcast the batched splice transaction while users are offline. With a
>> bit of luck, when the users reconnect, that transaction will already be
>> confirmed so it will "feel 0-conf".
>>
>> Also, we need a mechanism like the one you describe when we detect that
>> a splice transaction has been double-spent. But this isn't specific to
>> batched transactions, 2-party splice transactions can also be double
>> spent by either participant. So we need that mechanism anyway? The spec
>> doesn't have a way of aborting a splice after exchanging signatures, but
>> you can always do it as an RBF operation (which actually just does a
>> completely different splice). This is what Greg mentioned in his answer.
>>
>> > part of the splice proposal is that while a channel is being spliced,
>> > it should not be spliced again, which your proposal seems to violate.
>>
>> The spec doesn't require that, I'm not sure what made you think that.
>> While a channel is being spliced, it can definitely be spliced again as
>> an RBF attempt (this is actually a very important feature), which double
>> spends the other unconfirmed splice attempts.
>>
>> ariard:
>>
>> > It is uncertain to me if secure fee-bumping, even with future
>> > mechanisms like package relay and nversion=3, is robust enough for
>> > multi-party transactions and covenant-enable constructions under usual
>> > risk models.
>>
>> I'm not entirely sure why you're bringing this up in this context...
>> I agree that we most likely cannot use RBF on those batched transactions
>> we will need to rely on CPFP and potentially package relay. But why is
>> it different from non-multi-party transactions here?
>>
>> > See test here:
>> >
>> https://github.com/ariard/bitcoin/commit/19d61fa8cf22a5050b51c4005603f43d72f1efcf
>>
>> I'd argue that this is quite different from the standard replacement
>> cycling attack, because in this protocol wallet users can only
>> unilaterally double-spend with a commit tx, on which they cannot set
>> the feerate. The only participant that can "easily" double-spend is
>> the exchange, and they wouldn't have an incentive to here, users are
>> only withdrawing funds, there's no opportunity of stealing funds?
>>
>> Thanks,
>> Bastien
>>
>> Le mar. 17 oct. 2023 à 21:10, Antoine Riard <[email-masked]> a
>> écrit :
>>
>>> Hi Bastien,
>>>
>>> > The naive way of enabling lightning withdrawals is to make the user
>>> > provide a lightning invoice that the exchange pays over lightning. The
>>> > issue is that in most cases, this simply shifts the burden of making an
>>> > on-chain transaction to the user's wallet provider: if the user doesn't
>>> > have enough inbound liquidity (which is likely), a splice transaction
>>> > will be necessary. If N users withdraw funds from an exchange, we most
>>> > likely will end up with N separate splice transactions.
>>>
>>> It is uncertain to me if secure fee-bumping, even with future mechanisms
>>> like package relay and nversion=3, is robust enough for multi-party
>>> transactions and covenant-enable constructions under usual risk models.
>>>
>>> See test here:
>>>
>>> https://github.com/ariard/bitcoin/commit/19d61fa8cf22a5050b51c4005603f43d72f1efcf
>>>
>>> Appreciated expert eyes of folks understanding both lightning and core
>>> mempool on this.
>>> There was a lot of back and forth on nversion=3 design rules, though the
>>> test is normally built on glozow top commit of the 3 Oct 2023.
>>>
>>> Best,
>>> Antoine
>>>
>>> Le mar. 17 oct. 2023 à 14:03, Bastien TEINTURIER <[email-masked]> a
>>> écrit :
>>>
>>>> Good morning list,
>>>>
>>>> I've been trying to design a protocol to let users withdraw funds from
>>>> exchanges directly into their lightning wallet in an efficient way
>>>> (with the smallest on-chain footprint possible).
>>>>
>>>> I've come to the conclusion that this is only possible with some form of
>>>> covenants (e.g. `SIGHASH_ANYPREVOUT` would work fine in this case). The
>>>> goal of this post is to explain why, and add this usecase to the list of
>>>> useful things we could do if we had covenants (insert "wen APO?" meme).
>>>>
>>>> The naive way of enabling lightning withdrawals is to make the user
>>>> provide a lightning invoice that the exchange pays over lightning. The
>>>> issue is that in most cases, this simply shifts the burden of making an
>>>> on-chain transaction to the user's wallet provider: if the user doesn't
>>>> have enough inbound liquidity (which is likely), a splice transaction
>>>> will be necessary. If N users withdraw funds from an exchange, we most
>>>> likely will end up with N separate splice transactions.
>>>>
>>>> Hence the idea of batching those into a single transaction. Since we
>>>> don't want to introduce any intermediate transaction, we must be able
>>>> to create one transaction that splices multiple channels at once. The
>>>> issue is that for each of these channels, we need a signature from the
>>>> corresponding wallet user, because we're spending the current funding
>>>> output, which is a 2-of-2 multisig between the wallet user and the
>>>> wallet provider. So we run into the usual availability problem: we need
>>>> signatures from N users who may not be online at the same time, and if
>>>> one of those users never comes online or doesn't complete the protocol,
>>>> we must discard the whole batch.
>>>>
>>>> There is a workaround though: each wallet user can provide a signature
>>>> using `SIGHASH_SINGLE | SIGHASH_ANYONECANPAY` that spends their current
>>>> funding output to create a new funding output with the expected amount.
>>>> This lets users sign *before* knowing the final transaction, which the
>>>> exchange can create by batching pairs of inputs/outputs. But this has
>>>> a fatal issue: at that point the wallet user has no way of spending the
>>>> new funding output (since it is also a 2-of-2 between the wallet user
>>>> and the wallet provider). The wallet provider can now blackmail the user
>>>> and force them to pay to get their funds back.
>>>>
>>>> Lightning normally fixes this by exchanging signatures for a commitment
>>>> transaction that sends the funds back to their owners *before* signing
>>>> the parent funding/splice transaction. But here that is impossible,
>>>> because we don't know yet the `txid` of the batch transaction (that's
>>>> the whole point, we want to be able to sign before creating the batch)
>>>> so we don't know the new `prevout` we should spend from. I couldn't find
>>>> a clever way to work around that, and I don't think there is one (but
>>>> I would be happy to be wrong).
>>>>
>>>> With `SIGHASH_ANYPREVOUT`, this is immediately fixed: we can exchange
>>>> anyprevout signatures for the commitment transaction, and they will be
>>>> valid to spend from the batch transaction. We are safe from signature
>>>> reuse, because funding keys are rotated at each splice so we will never
>>>> create another output that uses the same 2-of-2 script.
>>>>
>>>> I haven't looked at other forms of covenants, but most of them likely
>>>> address this problem as well.
>>>>
>>>> Cheers,
>>>> Bastien
>>>> _______________________________________________
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>>>>
>>>