Subject: Re: [bitcoin-dev] Taro: A Taproot Asset Representation Overlay

From: Ruben Somsen <[email-masked]>
Date: Thu, 7 Apr 2022 19:14:03 +0200

Hi Laolu,

Nice work. This is an interesting protocol, in my opinion.

Seeing as there's a large amount of overlap with RGB, a protocol which I
have examined quite extensively, I believe some of the issues I uncovered
in that project also apply here.

The biggest issue revolves around the scripting expectations for this
protocol. Taro is described as being able to have its own scripting
capabilities that will initially be similar to Bitcoin and eventually be
made to do more. I'm afraid this is fundamentally impossible. Conditional
scripts (and thus most scripts that could potentially be of interest) won't
be possible if the satisfaction of the condition is not recorded publicly
on-chain.

The core problem here is that you have two levels of scripting. At the
Bitcoin level the UTXO is encumbered by the Bitcoin script, then at the
Taro level you have yet another script. This may seem similar at first
glance to how taproot has a key path and a script path, but there are a few
key differences. In taproot only one of the two needs to be satisfied,
while here you need to satisfy both. Furthermore, the Taro script is not
enforced by Bitcoin, meaning those who control the Bitcoin script can
always choose to ignore the Taro script and destroy the Taro assets as a
result.

I'll describe an example. Imagine Alice wants to send Bob a payment inside
Taro, but she wants to make it conditional. Bob gets the Taro tokens if he
reveals a pre-image, while Alice can claim the tokens back after the
timelock expires (i.e. the minimum scripting requirements for HTLCs). Alice
starts by locking up coins in a 2-of-2 multisig on the mainchain with some
Taro tokens inside. She then gives Bob a pre-signed transaction that only
requires him to reveal the pre-image in order to claim the tokens. The
issue here is that from Bitcoin's perspective, you're giving Bob a valid
transaction, regardless of whether he reveals the pre-image. If Bob
maliciously broadcasts it without the pre-image, he will have destroyed
your tokens.

Of course this was a contrived example, as these conditions could simply
take place entirely in Bitcoin script, but it demonstrates that Taro script
fundamentally cannot handle conditional payments, which is the basis for
any meaningful script other than self-encumbering covenants (i.e. if you
send your Taro tokens in any way other than specified, the tokens will be
destroyed). Luckily this has no effect on whether Taro can function over
Lightning, because solely relying on Bitcoin's scripting capabilities
should be sufficient for that use case.

As a side note, it may be worth pointing out that it *is* possible to
create conditional payments if the satisfaction of the condition is
recorded publicly on the mainchain (e.g. in an op_return), making it sort
of a hybrid on-chain/off-chain model, but it would increase complexity
considerably. I can explain this model in more detail, if it happens to
interest you.

Now there's a second issue I want to bring up, but unfortunately my
understanding of how exactly you made assets divisible is not complete
enough to know how this problem might have manifested in Taro. Nonetheless,
I'll try to describe it.

One of the core concepts of Taro/RGB is that the sender of the token has to
reveal the history to the recipient. In case of an NFT the history is
simply every prior owner and grows linearly, but in the case of fungible
tokens things are more complicated. Let's say Carol receives 2 fungible
Taro tokens from Alice and 3 fungible Taro tokens from Bob. Now Carol wants
to send 4 of them to Dave and keep 1. There are two possible designs here:

a.) The token history remains separate – Dave receives Alice's 2 tokens,
Bob's tokens are split and he receives 2 (or 3 from Bob 1 from Alice).

b.) The token history gets merged – Dave receives 4 tokens (linking the new
output with both Alice and Bob's history).

The issue with a.) is that you're only ever fragmenting tokens, so
eventually you end up with lots of tiny but separate amounts. This will
cause making large payments to involve sending lots of tokens, each with
their own history. Under this model, I suspect the fixed value token model
(e.g. 1, 2, 4, 8) might be preferable, as this prevents the entire supply
from getting split into tiny fragments.

The issue with b.) is that you end up with a linked transaction graph, just
like in Bitcoin. If you pick a random Bitcoin UTXO and try to trace it back
to a coinbase, you'll quickly find that it could have come from many of
them. The graph that you'd traverse to get to all of these coinbases is
equivalent to the amount of history that a recipient of a Taro token has to
validate in order to accept it, which I suspect quickly becomes a
bottleneck that is not unlike that of a regular blockchain.

It'd probably be wise to make a model of the potential transaction flow,
and simulate how it affects the size of the history in order to determine
what's the best approach and to generally get a better idea of how it
affects scaling. Also, the repeated sharing of history makes me skeptical
about the privacy this protocol may provide. If large amounts of history
moved through the hands of a large number of people, it wouldn't be very
private.

There's a third third smaller issue I want to point out, which is easily
fixable and perhaps was just a typo. In your slides, you showed a
screenshot of a taproot tree containing the Taro tree as the third element
of four. This implies the location of the Taro tree inside the taproot tree
is not fixed. What needs to be prevented here is that a taproot tree
contains more than one Taro tree, as that would enable the owner of the
commitment to show different histories to different people.

Finally, let me conclude with two questions. Could you clarify the purpose
of the sparse merkle tree in your design? I suppose you want to be able to
open a commitment and show it contains a certain asset without having to
reveal any of the other assets and simultaneously guarantee that you
haven't committed to the same asset twice (i.e. the SMT guarantees each
asset gets a specific location in the tree)? Or is there another reason?

And the second question – when transferring Taro token ownership from one
Bitcoin UTXO to another, do you generate a new UTXO for the recipient or do
you support the ability to "teleport" the tokens to an existing UTXO like
how RGB does it? If the latter, have you given consideration to timing
issues that might occur when someone sends tokens to an existing UTXO that
simultaneously happens to get spent by the owner?

In any case, I hope this email was useful. Feel free to reach out if I can
clarify anything.

Good luck with the protocol.

Best regards,
Ruben

On Tue, Apr 5, 2022 at 5:06 PM Olaoluwa Osuntokun via bitcoin-dev <
[email-masked]> wrote:

> Hi y'all,
>
> I'm excited to publicly publish a new protocol I've been working on over
> the
> past few months: Taro. Taro is a Taproot Asset Representation Overlay which
> allows the issuance of normal and also collectible assets on the main
> Bitcoin
> chain. Taro uses the Taproot script tree to commit extra asset structured
> meta
> data based on a hybrid merkle tree I call a Merkle Sum Sparse Merkle Tree
> or
> MS-SMT. An MS-SMT combined the properties of a merkle sum tree, with a
> sparse
> merkle tree, enabling things like easily verifiable asset supply proofs and
> also efficient proofs of non existence (eg: you prove to me you're no
> longer
> committing to the 1-of-1 holographic beefzard card during our swap). Taro
> asset
> transfers are then embedded in a virtual/overlay transaction graph which
> uses a
> chain of asset witnesses to provably track the transfer of assets across
> taproot outputs. Taro also has a scripting system, which allows for
> programmatic unlocking/transfer of assets. In the first version, the
> scripting
> system is actually a recursive instance of the Bitcoin Script Taproot VM,
> meaning anything that can be expressed in the latest version of Script can
> be
> expressed in the Taro scripting system. Future versions of the scripting
> system
> can introduce new functionality on the Taro layer, like covenants or other
> updates.
>
> The Taro design also supports integration with the Lightning Network
> (BOLTs) as
> the scripting system can be used to emulate the existing HTLC structure,
> which
> allows for multi-hop transfers of Taro assets. Rather than modify the
> internal
> network, the protocol proposes to instead only recognize "assets at the
> edges",
> which means that only the sender+receiver actually need to know about and
> validate the assets. This deployment route means that we don't need to
> build up
> an entirely new network and liquidity for each asset. Instead, all asset
> transfers will utilize the Bitcoin backbone of the Lightning Network, which
> means that the internal routers just see Bitcoin transfers as normal, and
> don't
> even know about assets at the edges. As a result, increased demand for
> transfers of these assets as the edges (say like a USD stablecoin), which
> in
> will turn generate increased demand of LN capacity, result in more
> transfers, and
> also more routing revenue for the Bitcoin backbone nodes.
>
> The set of BIPs are a multi-part suite, with the following breakdown:
>  * The main Taro protocol:
> https://github.com/Roasbeef/bips/blob/bip-taro/bip-taro.mediawiki
>  * The MS-SMT structure:
> https://github.com/Roasbeef/bips/blob/bip-taro/bip-taro-ms-smt.mediawiki
>  * The Taro VM:
> https://github.com/Roasbeef/bips/blob/bip-taro/bip-taro-vm.mediawiki
>  * The Taro address format:
> https://github.com/Roasbeef/bips/blob/bip-taro/bip-taro-addr.mediawiki
>  * The Taro Universe concept:
> https://github.com/Roasbeef/bips/blob/bip-taro/bip-taro-universe.mediawiki
>  * The Taro flat file proof format:
> https://github.com/Roasbeef/bips/blob/bip-taro/bip-taro-proof-file.mediawiki
>
> Rather than post them all in line (as the text wouldn't fit in the allowed
> size
> limit), all the BIPs can be found above.
>
> -- Laolu
> _______________________________________________
> bitcoin-dev mailing list
> [email-masked]
> https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-dev
>