Thanks for all of the input and comments - I do now think that the
decrementing nSequence relative locktime backup system with kick-off
transaction is the way to go, including a fee penalty via CPFP to
disincentivise DoS, as suggested.
I have started a more detailed document specifying the proposed protocol in
more detail:
https://github.com/commerceblock/mercury/blob/master/statechains.md which
includes improvements to the transfer mechanism (and an explanation of how
this can be used to transfer/novate positions in DLCs). Always happy to get
more feedback or PRs.

Tom

On Tue, Mar 31, 2020 at 12:41 PM Tom Trevethan <tom@commerceblock.com>
wrote:

> Hi David,
>
> Just for clarity, I left nChain over 2 years ago (having worked there
> since 2016). While there, I (along with other researchers) were given free
> rein to work on any ideas we wanted to. I had been interested in the
> scaling of Bitcoin off-chain, and this was one of several things I spent
> time on (including things like sidechains, pegs and threshold signatures).
> This patent application came out of an idea I had to transfer ownership of
> UTXOs off-chain that has some similarities to the statechains proposal,
> which has shown there is interest and demand for this type of system.
>
> Although I think the existence of this application is something to be
> mindful of, there are several important things to note:
>
> 1. Although there are similarities, the current ideas are significantly
> different to those in the application.
> 2. The key transfer protocol as described in the application is not secure
> (for several reasons, including as discussed above, by Albert and Bob etc.)
> - and a different mechanism is required.
> 3. Decrementing timelocks (as suggested in the application) are prior art
> (Decker-Wattenhofer 2015), and in any case any implementation will most
> likely use an 'invalidation tree' relative locktime backup mechanism for
> open-ended UTXOs.
> 4. The patent application has not been granted (it was made in May 2017)
> and the international search report rejected it on the grounds of prior
> art.
>
> Tom
>
> On Tue, Mar 31, 2020 at 11:36 AM David A. Harding <dave@dtrt.org> wrote:
>
>> On Wed, Mar 25, 2020 at 01:52:10PM +0000, Tom Trevethan via bitcoin-dev
>> wrote:
>> > Hi all,
>> >
>> > We are starting to work on an implementation of the statechains concept
>> (
>> >
>> https://medium.com/@RubenSomsen/statechains-non-custodial-off-chain-bitcoin-transfer-1ae4845a4a39
>> ),
>> >
>> > [...]
>> > There are two main modifications we are looking at:
>> > [...]
>> >
>> > 2. Replacing the 2-of-2 multisig output (paying to statechain entity SE
>> key
>> > and transitory key) with a single P2(W)PKH output where the public key
>> > shared between the SE and the current owner. The SE and the current
>> owner
>> > can then sign with a 2-of-2 ECDSA MPC.
>>
>> Dr. Trevethan,
>>
>> Would you be able to explain how your proposal to use statechains with
>> 2P-ECDSA relates to your patent assigned to nChain Holdings for "Secure
>> off-chain blockchain transactions"?[1]
>>
>>     [1] https://patents.google.com/patent/US20200074464A1
>>
>> Here are some excerpts from the application that caught my attention in
>> the context of statechains in general and your proposal to this list in
>> particular:
>>
>> > an exchange platform that is trusted to implement and operate the
>> > transaction protocol, without requiring an on-chain transaction. The
>> > off-chain transactions enable one computer system to generate multiple
>> > transactions that are recordable to a blockchain in different
>> > circumstances
>> >
>> > [...]
>> >
>> > at least some of the off-chain transactions are valid for recording on
>> > the blockchain even in the event of a catastrophic failure of the
>> > exchange (e.g., exchange going permanently off-line or loosing key
>> > shares).
>> >
>> > [...]
>> >
>> > there may be provided a computer readable storage medium including a
>> > two-party elliptic curve digital signature algorithm (two-party ECDSA)
>> > script comprising computer executable instructions which, when
>> > executed, configure a processor to perform functions of a two-party
>> > elliptic curve digital signature algorithm described herein.
>> >
>> > [...]
>> >
>> > In this instance the malicious actor would then also have to collude
>> > with a previous owner of the funds to recreate the full key. Because
>> > an attack requires either the simultaneous theft of both exchange and
>> > depositor keys or collusion with previous legitimate owners of funds,
>> > the opportunities for a malicious attacker to compromise the exchange
>> > platform are limited.
>>
>> Thank you,
>>
>> -Dave
>>
>