Subject: Re: [bitcoin-dev] reviving op_difficulty

From: Tier Nolan <[email-masked]>
Date: Sun, 16 Aug 2020 19:59:25 +0100

On Sun, Aug 16, 2020 at 4:50 PM Thomas Hartman via bitcoin-dev <
[email-masked]> wrote:

> My understanding is that adding a single op_difficulty operation as
> proposed would enable not true difficulty futures but binary options
> on difficulty.
>
> https://en.wikipedia.org/wiki/Binary_option

Any kind of opcode is a binary option.  Either the output can be spent or
it can't.

You could get a pseudo-continuous future by having lots of outputs with
different thresholds.

Alice and Bob create a transaction with 100 outputs and each having 1% of
the future's value.

Output 0:  Pay Alice if diff < 1.00 trillion else Bob
Output 1:  Pay Alice if diff < 1.01 trillion else Bob
....
Output 98:  Pay Alice if diff < 1.98 trillion else Bob
Output 99:  Pay Alice if diff < 1.99 trillion else Bob

If the difficulty is 1.25 trillion, then Alice gets outputs 0-24 and Bob
gets outputs 25-99.  The future has a tick size of 1%.  It isn't very
efficient though

It would be good to have the option to specify a block height for the
future too.  If it triggered on block time, then miners have an incentive
to give false block times.

I am not clear if there is a way to solve the accounting for the
> payouts, but perhaps there is a way to do this with covenants.
>

I agree you would need covenants or something similar.

There needs to be a way to check the outputs (value and script) of the
spending transaction.  You also need a way for Alice and Bob to create
their spending transaction in sequence.

Output 0: Pay Alice if [output value 0] <= Diff / 1 trillion AND [output
value 1] >= (2 trillion - diff)  / (1 trillion) AND [output 1 pays to Bob]

To spend her output, Alice has to create a transaction which pays Bob and
assigns the coins in the right ratio.  [output value x] means the output
value of the spending transaction for output x.

To get it to work Alice creates a transaction with these restrictions

Output 0:
Script: Anything (Alice gets it to pay herself)
Value: <= Diff / 1 trillion

Output 1:
Script: Must pay to Bob
Value: >= (2 trillion - Diff) / 1 trillion

You also need to handle overflows with the calculations.

Bob can then spend output 1 and get his money.

There is a hold-up risk if Alice doesn't spend her money.  You can make the
output script so either of them can spend their coins to avoid that.

Output 0:
    Pay Alice if [output value 0] <= Diff / 1 trillion AND [output value 1]
>= (2 trillion - diff)  / (1 trillion) AND [output 1 pays to Bob]
      OR
    Pay Bob if [output value 0] <= (2 trillion - Diff) / 1 trillion AND
[output value 1] >= Diff / (1 trillion) AND [output 1 pays to Alice]

You would need a covenant-like instruction to check the output values and
scripts and the diff opcode to get the difficulty.