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

From: Bastien TEINTURIER <[email-masked]>
Date: Wed, 18 Oct 2023 16:35:40 +0200

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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>