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

From: Antoine Riard <[email-masked]>
Date: Thu, 19 Oct 2023 18:09:51 +0100

Hi Bastien,

Thanks for your additional comments.

> 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.

Understood better, it's like a regular splice where one participant might
be able to double-spend at any time with a previous commit tx. So yes,
usual liquidity griefing we're already aware of I think and where one
should wait for a few confirmations before using spawned channels.

> 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.

Under this model where the splice should be a "standard" nVersion=2
transaction that is using a reasonable feerate for non-delayed broadcast,
yes my comment does not apply, agree here.

However for a hypothetical future, where the picked up feerate of the batch
splicing isn't compelling enough in face of mempool spikes, interactivity
to re-generate a bumped RBF might not be an option. Sadly re-broadcasting
the batch splice tx package with a bumped CPFP, might be affected by my
concern if it is correct. To be verified.

Best,
Antoine

Le jeu. 19 oct. 2023 à 08:35, Bastien TEINTURIER <[email-masked]> a
écrit :

> 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
>>>>> _______________________________________________
>>>>> Lightning-dev mailing list
>>>>> [email-masked]
>>>>> https://lists.linuxfoundation.org/mailman/listinfo/lightning-dev
>>>>>
>>>>