Subject: [bitcoin-dev] Recurring bitcoin/LN payments using DLCs

From: Chris Stewart <[email-masked]>
Date: Thu, 3 Mar 2022 06:58:55 -0600

DLCs are typically thought to be used for betting. Alice & Bob want to
speculate on an event, and have bitcoin payouts rewarded to them if they
bet correctly. The oracle determines what event occurred and produces
attestations representing that outcome.

Recently I had a conversation with a friend about implementing recurring
subscriptions with Discreet Log Contracts. At a high level, you should
think about this working like ACH. If you are purchasing a subscription
from Netflix, they will deduct $20 from your bank account every month. To
do this, you give them your credit card information.

You can do this with Discreet Log Contracts. It requires a slightly
modified DLC setup. Netflix would create an oracle representing a monthly
subscription. They require that users setup DLCs to them that will be
executed at the end of the month. Alice, a subscriber to Netflix, creates a
unilaterally funded DLC to Netflix. She creates adaptor signatures for her
payment and sends them to Netflix.

No bitcoin transaction is required to create this subscription since the
DLC is unilaterally funded. Alice can “cancel” the subscription at any time
by spending from the utxo she is using to fund the DLC.

At the end of the month, Netflix attests that it is time to charge Alice
for her subscription. Netflix takes its own attestation and decrypts
Alice’s adaptor signature to get her signature to send funds to Netflix.
Netflix publishes the settlement transaction for the DLC which pays Netflix
it’s subscription fee for the next month. Netflix also publishes a new
announcement for next month so that Alice can create a new DLC subscription.

Netflix needs to give Alice a bitcoin address to pay to.

The information Alice is required to send Netflix is

   1.

   Her utxo used to fund the DLC
   2.

   Her adaptor signature representing her monthly subscription to netflix.

Netflix must verify the adaptor signatures are correct and the utxo exists.

Why is this useful?

It's very convenient for a user to give access to withdraw a certain amount
of money from a bank account at a given time in the future. This is how
recurring payments work in tradfi. This brings the same principle to
bitcoin payments.

DLCs also give you the power to specify how much the service can withdraw.
For instance, with Netflix, they shouldn’t have the ability to withdraw
thousands of dollars worth of bitcoin. The monthly service fee is $20. With
DLCs, you can cryptographically enforce that they will only receive $20.
They cannot withdraw more or less money than they are authorized to.

There may be concerns about Netflix being both the oracle and the entity
receiving a monthly payment. I would argue this is mitigated by the fact
that the service provider could steal at most one months worth of service
fees for users of the subscription. After users get scammed once, they will
cancel their future subscription and distrust the service. The key feature
is the amount of money in the subscription is predetermined, thus the
oracle cannot withdraw excess funds if they are evil.

### QA

Does the DLC use a 2 of 2 multisig between Netflix and Alice?

No, the DLC is unilaterally funded by Alice. This allows her to create the
subscription without an onchain transaction, and also allows her to cancel
the subscription at any time. She cancels the subscription by double
spending the utxo.

Can Netflix steal all the money in the funding output?

No, Alice’s adaptor signatures allow Netflix to withdraw a specific amount
of bitcoin. The change is sent back to an address Alice controls. Both of
these outputs are protected by the adaptor signature.

Is there a perverse incentive for Netflix to be the oracle and receive the
subscription?

The most Netflix can steal in this setup is one months worth of
subscription fees across the entire customer base. In this setup, Alice is
accepting that risk for the convenience of auto withdrawals from her
bitcoin wallet. Remember, Alice can cancel the subscription at any time she
wants by spending from the funding utxo.