It would probably only work out if each output got their own private keys, since otherwise Alice can't share any outputs with Bob and vice versa.

The whole thing sounds like an HTLC with an additional trading of private keys for the actual trades instead of in the HLTC. How are they going to share their private keys securely, with PGP?

Perhaps Taproot with its selective revealing of certain script branches can help here, but I'm not sure about details.

- Ali

> Hi Bitcoin Developers,
>
> Does it make sense to trade replacement transactions for privacy? I have shared basic details to implement this and would love to read opinions about it or ways to improve it:
>
> =============================
> alice
> =============================
>
> tx1: input a (0.01) -> output b1 (0.008)
> -> change c1 (0.001)
>
> tx2: input a (0.01) -> output e2 (0.007)
> -> output f2 (0.001)
>
> =============================
>
> bob
> =============================
>
> tx1: input d (0.011) -> output e1 (0.007)
> -> change f1 (0.003)
>
> tx2: input d (0.011) -> output b2 (0.008)
> -> output c2 (0.001)
>
> =============================
>
> carol
> =============================
>
> - creates an API to manage trades that will use 2 of 3 multisig
> - alice and bob create orders for replacement
> - either they could be matched automatically using some algorithm or bob manually accepts the offer
> - 2 of 3 multisig is created with Alice, Bob and Carol keys
> - bob locks 0.01 BTC in it and shares outputs e2,f2 with alice
> - alice signs tx2 and shares tx with bob
> - alice locks 0.011 BTC in it and shares outputs b2,c2 with bob
> - bob signs tx2 and shares with alice
> - both replacement txs can be broadcasted
> - funds are released from 2 of 3 multisig with a tx having 3 outputs (one to pay fee which goes to carol)
>
> positives:
>
> - privacy
>
> negatives:
>
> - extra fees
> - will take some time although everything will be managed by wallet with API provided by carol
> - need to lock bitcoin with same amount as used in tx1
> - amounts could still be used to link txs in some cases- carol and other peer knows the details