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The Pros, Cons And Possibilities For Bitcoin’s Discreet Log Contracts

14/02/2022 by Idelto Editor

Discussing Discreet Log Contracts, a type of smart contract that can be leveraged for many financial instruments on Bitcoin.

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In this episode of “Bitcoin, Explained,” hosts Aaron van Wirdum and Sjors Provoost were joined by resident sidechain and Layer 2 expert Ruben Somsen, once again, this time to discuss Discreet Log Contracts (DLCs). 

DLCs are a type of smart contracts for Bitcoin, first proposed by Lightning Network white paper co-author Tadge Dryja. In essence, DLCs are a way to perform bets — but this means that they can ultimately be leveraged for all sorts of financial instruments, including futures markets, insurances and stablecoins. 

At the start of the episode, van Wirdum, Provoost and Somsen discussed what can be considered a type of proto-DLC, namely a multi-signature setup for sports betting where two participants add a neutral third party (an “oracle”) that can resolve the bet one way or the other if needed. The trio explained that how this solution comes with a number of downsides, like the difficulty of scaling it. 

From there, van Wirdum, Provoost and Somsen went on to explain how DLCs solved these problems using a setup that resembles payment channels as used on the Lightning Network. When structured like this, they explained, oracles merely need to publish a cryptographically-signed message about the outcome of an event, which can be used by the winning participant of the bet to create a withdrawal transaction from the payment channel. 

Finally, Somsen explained how the original DLC concept could be streamlined by using adaptor signatures, a sort of “incomplete signatures” that can be made complete using the signed message from the oracle. With adaptor signatures, DLCs no longer require a separate withdrawal transaction, as the winner can claim funds from the payment channel directly.

Filed Under: Bitcoin Explained, Bitcoin Magazine, Discreet Log Contracts, dlcs, English, Oracles, Podcast, Podcasts, smart-contracts, technical

Using Discreet Log Contracts To Attack Bitcoin Forks

13/04/2021 by Idelto Editor

Currently, various factors disincentivize attacks of minority chains; DLCs might create a workaround that returns the incentive to these attacks.

Currently, there are many blockchains with miniscule amounts of hash power compared with Bitcoin’s, and yet, they rarely see attacks. I believe that this is because of external factors that prevent miners from taking advantage of this potential revenue stream. Discreet Log Contracts (DLCs) are a method to mitigate these external factors so that miners have the ability to attack minority blockchains.

The Problem

If one wanted to attack a minority blockchain (e.g., BSV), the current best way would be to steal bitcoin from an exchange. This could be done by depositing some BSV into an exchange, selling it for bitcoin, withdrawing said bitcoin, and then executing a 51% attack such that the original BSV deposit never happened. At the end of this, the attacker has received Bitcoin without having to spend any BSV.

There are a few problems with this attack scenario that make it difficult to execute. One is that most exchanges require know-your customer (KYC) procedures for trading and withdrawals. This means that if such an attack were perpetrated on a blockchain like BSV, the exchange could see exactly who was doing it. Another problem is that the attacker would clearly be stealing from the exchange, which is immoral, and it could destroy a miner/mining pool’s reputation if they were to execute such an attack.

Collectively, these factors mitigate and arguably remove the incentives that large-scale miners would need to find such attacks to disrupt minority blockchains worthwhile.

Solution

DLCs provide a way to establish contracts on Bitcoin that are contingent on a set of oracles’ attestations. If one wanted to attack minority blockchains, it would be useful to be able to bet that they will experience 51% attacks, or to better quantify such attacks, one could bet that a blockchain reorganization (reorg) greater than or equal to 100 blocks will occur. Once a miner has made such a bet, they have an economic incentive to attack the minority blockchain, as it would allow them to receive the payout without having to steal from an exchange. Such a miner could then attack the blockchain themselves to force a 100-block reorg to occur, after which the oracles would attest that the event occurred, and the miner could then claim their reward by executing the DLC. Thus, the miner could attack the minority blockchain and get paid for it while not having to steal from anyone.

The only thing missing is that the miners need someone to fund the other side of this contract by betting that the minority blockchain will not experience a large reorg. Anyone could take this bet, whether holders of the actual coin or simply gamblers. The non-malicious miners of the target blockchain would have a large incentive to take this side of the bet, as they are the defense system that prevents these large reorgs from happening. In the event that the attacker fails, or no attack ever comes, the bet would provide free extra income for the minority blockchain’s miners.

If a market developed around this, it could create a signalling mechanism that would show when a block reorg attack is about to occur. If a miner were about to execute a large reorg on a blockchain, they would likely purchase any available contracts betting that the reorg will occur. This mass buying of the contracts could signal to the market that a reorg is coming, and entities like exchanges could temporarily halt deposits and withdrawals to mitigate risk.

In summary, today Bitcoin miners do not have a way to profit from attacking minority blockchains without stealing from a regulated entity. DLCs provide an alternative that could function as a marketplace for pricing the cost to attack minority blockchains.

This is a guest post by Ben Carman. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine

Filed Under: Bitcoin Magazine, Discreet logs, dlcs, English, Forks, technical

Interview: Bitcoin Smart Contracts With Ben Carman

06/04/2021 by Idelto Editor

Bitcoin developer Ben Carman joined the “Bitcoin Magazine Podcast” to discuss his cutting-edge work in the Bitcoin smart contracting space.

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In this episode of the “Bitcoin Magazine Podcast,” host Christian Keroles sat down with rising Bitcoin developer Ben Carman to discuss his cutting-edge work in the Bitcoin smart contracting space, as well as controversy and disputes that Carman finds himself in as he trolls Bitcoin Twitter.

Carman and Keroles first met far before Carman’s rise to prominence in the Bitcoin community at the BitBlockBoom conference in 2019. Since then, Carman has joined SuredBits as a leader in discreet log contract (DLC) technology. DLCs show promise as the smart contracting and oracle layer for the Bitcoin financial stack. Carman has since built Krystal Bull, which is a wallet for hosting an oracle. Carm threw in his two cents on the Taproot activation discussion and educated Keroles about all of the benefits and features that Taproot enables.

Lastly, they dove into a recent confrontation between Eric July and Carman. July is a prominent libertarian pendent who does not really recommend or educate his following on Bitcoin. Carman and other Bitcoin plebs joined July’s podcast to call out the fact that he and other libertarians that do not take action are LARPS and he discussed the fallout from that confrontation.

Topics discussed include:

  • DLCs
  • The Bitcoiner and libertarian showdown
  • Suredbits
  • Krystal Bull
  • Why run an oracle?
  • Taproot
  • Lot=true versus =false
  • The future and nature of Bitcoin finance
  • Why are libertarians who deny bitcoin LARPs?
  • Eric July’s podcast

Filed Under: ben carman, Bitcoin Magazine, bitcoin magazine pocast, dlcs, English, Podcast, smart-contracts, technical, Video

Human Rights Foundation Announces $70,000 In Bitcoin Development Grants

02/03/2021 by Idelto Editor

The Human Rights Foundation is donating to Jesse Posner, Munn Wallet, Janine Roem and Blockchain Commons.

Today, the Human Rights Foundation (HRF) has announced four new grants as part of its Bitcoin Development Fund, a program launched last year to financially support Bitcoin developers who are working to make the network more private, decentralized and resilient.

The non-profit focused on preserving human rights around the world will be donating $25,000 in BTC to Jesse Posner, who is working on adapter signatures and discreet log contracts (DLCs); $25,000 in BTC to the team behind Munn Wallet; $10,000 in BTC to Janine, who manages a Bitcoin privacy newsletter; and $10,000 in BTC to the team behind open-source cryptography non-profit Blockchain Commons.

“This wave of donations will support Bitcoin development, a new open-source wallet, a privacy newsletter and internships for college students to work on Bitcoin software and new user education,” per an HRF announcement shared with Bitcoin Magazine.

The announcement also offered details on how each recipient and project could advance Bitcoin as a sovereignty tool.

Posner was previously working on key management for the cryptocurrency exchange Coinbase, before shifting to open-source technology development. HRF expects its grant to help him research and implement key management for Bitcoin following the activation of Taproot, highlighting the potential of flexible round-optimized Schnorr threshold signatures (FROST) to help users easily and privately control funds.

The Lightning-compatible Munn Wallet is available for Android and iPhone and seeks to make it easier for users to self-custody their bitcoin. The project is based in Argentina and led by Dario Sneidermanis.

Janine’s “This Month In Bitcoin Privacy” newsletter collects and redistributes the latest news and how-tos in Bitcoin privacy to help readers better protect themselves from bad actors and prying eyes while utilizing the technology.

Blockchain Commons, an organization working to create decentralized blockchain infrastructure, is expected to put its grant toward the launch of a series of Bitcoin-focused internships for university students. The internships will give participants the opportunity to contribute to Bitcoin software development and to help HRF network activists onboard to Bitcoin.

“They will allow, for example, journalists and dissidents under authoritarian regimes to have personalized assistance on how to, for example, set up a bitcoin payment processor on their website to allow them to receive donations from anywhere in the world, configure a wallet that they securely control and sell bitcoin into fiat safely when necessary to pay for program expenses,” per the announcement.

The HRF Bitcoin Development Fund has supported numerous individuals and projects since its inception, including Chris Belcher for CoinSwap, Gloria Zhao for Package Memepool Accept, the Global Mesh Labs team for the Lot49 protocol, Ben Kaufman for Specter Wallet, Openoms for JoinInbox, Evan Kaloudis for Zeus and Fontaine for Fully Noded.

Filed Under: Bitcoin Magazine, Blockchain Commons, dlcs, English, human rights foundation, Munn Wallet, technical

Bitcoin’s 2020 In Tech

31/12/2020 by Idelto Editor

Seemingly undisturbed by 2020’s craziness, and largely unfazed by bitcoin’s wild price swings that concluded with new all-time highs in December, Bitcoin’s technical community continues to plow ahead. Bitcoin’s software and the many projects around it were gradually improved throughout the year, as software was optimized, bugs fixed and privacy leaks patched. The bulk of this work, as vital as much of it is, doesn’t attract headlines.

Yet, a bird’s-eye view on Bitcoin’s tech development over the span of a year helps highlight new milestones in Bitcoin’s ongoing technological march forward. In 2020, too, the consistently growing Bitcoin development community introduced a number of useful new features, several particularly important upgrades and some especially notable improvements.

As this volatile year is drawing to a close, these were some of Bitcoin’s most notable technical developments over the past 12 months…

New Privacy Tools With PayJoin And CoinSwap

On Bitcoin’s privacy front, the PayJoin and CoinSwap projects this year represented two promising advancements.

PayJoin, also known as Pay to Endpoint (P2EP), is a trick that lets recipients of a transaction partake in the transaction through a CoinJoin, to basically send funds to themselves while also receiving the actual payment from the real sender. If a snoop, conducting blockchain analysis, were to assume that all coins sent in a transaction belonged to the same person — as they normally would — they’d be wrong. This already benefits the privacy of both sender and receiver, as the snoop would confuse (past) coin ownership between them. Moreover, if enough people use PayJoin, it could render this important heuristic for blockchain analysis useless altogether, in turn benefiting even the privacy of those who didn’t make PayJoin transactions themselves.

Although demo versions of the PayJoin tool had already been implemented for online gambling game Bustabit and the coin mixing software JoinMarket in late 2018, and Samourai Wallet in 2019 released its own — more limited — version under the Cohoots umbrella (with slightly different privacy tradeoffs), PayJoin was this year implemented in several popular Bitcoin projects. This notably included the widely used payment processing software BTCPay in April, allowing BTCPay users to accept PayJoin transactions from compatible wallets. The privacy-focused Wasabi Wallet was the first wallet to offer this compatibility later that same month, while JoinMarket (September), Blue Wallet (October) and Sparrow Wallet (November) followed later in the year.

Meanwhile, Bitcoin developer Chris Belcher set out to realize an implementation of CoinSwap, a privacy technique first proposed in 2013 by Bitcoin Core contributor Gregory Maxwell. CoinSwap leverages Atomic Swaps (the trick that also underpins the Lightning Network) to let users exchange coins without needing to trust one another. Each user would end up with coins that can’t be linked to their own transaction history.

Belcher, one of the world’s foremost experts in Bitcoin privacy, in May published a detailed outline of how the CoinSwap protocol could be implemented to ensure maximum privacy. The proposal would make CoinSwap transactions indistinguishable from other transactions, use splitting techniques to obscure amounts, route payments to frustrate snooping participants and more. A few months later, in June, The Human Rights Foundation announced that its first Bitcoin development grant would go to Belcher and his efforts to realize the project.

Having worked on his implementation for most of the year, Belcher in December announced a “big day for bitcoin privacy and fungibility”: he’d made the first-ever successful CoinSwap transaction on Bitcoin’s test network (testnet).

The Lightning Network Became More Robust With Watchtowers (And More)

The Lightning Network, Bitcoin’s Layer 2 protocol for faster, cheaper and more private payments, continued to improve across the board in 2020. With Lightning implementations LND, Eclair, C-Lightning and — since July — Electrum rolling out a number of new software releases, and a growing number of projects building on top of the protocol, Lightning development was more active than ever. Among the more notable developments, Watchtowers resolved one of the Lightning Network’s remaining weaknesses, resulting in a more robust protocol.

One of the Lightning Network’s tradeoffs is that users need to keep an eye on their payment channels to ensure that payment channel partners aren’t trying to cheat by broadcasting old channel states to claim more funds than attributed to them. Lightning users can step in if a channel partner attempts to cheat, but this does require monitoring of the Bitcoin blockchain, which casual users might not do very regularly.

To decrease the risk that an attempt at cheating is missed, the Lightning protocol allows channel monitoring to be outsourced to impartial observers called Watchtowers. Adding to the first Watchtower software introduced by LND by late 2019, February of this year saw the alpha release of the dedicated Watchtower implementation Eye of Satoshi. Shortly after, the proposed Watchtower protocol specification was updated, while C-Lightning rolled out support for Eye of Satoshi in May. Version 1 of Eye of Satoshi followed in July.

Other notable Lightning developments in 2020 include the continued work on anchor outputs to ensure users can claim funds from a channel unilaterally even when on-chain fees have gone up more than expected since the last payment channel update, Multipath payments which let users make Lightning payments in smaller chunks, the Lightning Network-native messaging application Juggernaut, channel management tool Faraday, the Lightning Loop beta release, but also some newly discovered weaknesses as well as (proposed) solutions, and a lot more more.

After Miniscript, Bitcoin Programming Was Made Easier With Minsc

The code embedded in Bitcoin transactions that specifies what conditions must be met to spend the coins in a next transaction is written in a programming language specifically designed for Bitcoin, called Script. Script can be tricky to work with, however: in programmers jargon, Script is hard to “reason about.” This means that, especially as it becomes a bit more complex, it can be difficult to understand what a piece of script actually allows: a transaction may unintentionally include code that allows the coins to be spent under different conditions than originally intended. This is one reason why many Bitcoin software applications, like wallets, refrain from utilizing Script’s full potential.

Over the past years, (former) Blockstream researchers Andrew Poelstra, Pieter Wuille and Sanket Kanjalkar designed a “stripped down” version of Script, called Miniscript. Miniscript is a selection of “tools” from the “Script toolkit” that are carefully selected to enable practically anything that can be done with Script, but it’s easier to use and easier to verify by programmers. So, while a line of Miniscript is still a valid line of Script, it essentially avoids human error by preventing unexpected, perhaps unintended, outcomes of the code; Miniscript is easier to reason about. In November of this year, Head of Research and Development at Rugged Bytes Dmitry Petukhov published a formal specification of Miniscript.

To make creating Bitcoin transactions even easier, Wuille had also designed a “policy language” for Miniscript, a programming language of its own that could compile (convert) into Miniscript, and thus Script. Building on Wuille’s work, Bitcoin developer Nadav Ivgi this year developed another new programming language called Minsc. First announced in July, and followed up with a major upgrade in November, Minsc is still a work in progress, but is set to greatly simplify the creation of Bitcoin transactions. This could help unlock a range of promising features that take full advantage of Bitcoin’s versatility, like interoperable CoinJoin wallets, smart contract solutions, Layer 2 protocols and more.

Smart Contracts Became Smarter With DLCs

Whenever smart contracts depend on external data — data that doesn’t live on the blockchain — they rely on an external source for that data referred to as an “oracle.” If two users want to bet on the outcome of a sports match, for example, the oracle would have to use the result of the match to settle the bet in favor of whoever made the correct prediction (at least in case of a dispute).

A very basic sports betting setup could consist of a two-of-three multisignature (multisig) address where both players and the oracle all hold one key each, and the oracle is informed of the details of the bet. After the match, the two players could cooperate to send the funds from the multisig to the winner without the oracle’s key. But if the loser refuses to cooperate, the oracle can use its third key to cooperate with the winner to send them the funds from the multisig. This system works, but has two main downsides. One, both players need to trust the oracle not to collude with their opponent. And two, the oracle needs to be informed of the bet and perhaps play an active part in the settlement process: this means players have no privacy from the oracle, while the setup doesn’t scale very well if more than a few players want to bet.

A better solution was in 2017 proposed by MIT Media Lab’s Digital Currency Initiative researcher Thaddeus Dryja: discreet log contracts (DLCs). DLCs use a clever mathematical trick where the oracle publishes a cryptographic signature that corresponds with the outcome of an event. In the example above, the oracle would publish one signature if the first team wins, and a different signature if the other team wins. The trick: the smart contract is designed to let the winning player use the published signature to claim the funds.

In a DLC, the oracle’s involvement with the smart contract is minimized to the publication of a signature; this could, in the sports betting example for instance, be done by an existing news service, as part of its regular broadcast. This also means that the oracle doesn’t need to be informed about the details of the bet, and in fact doesn’t even need to know there was a bet at all. Meanwhile, any number of people can use the signatures to settle their bets with no further involvement from the oracle, greatly benefiting scalability. And while oracle could in theory still collude with someone and broadcast the wrong result, such dishonest behavior would be obvious to anyone and tarnish the oracle’s reputation going forward.

In January of this year, CEO Chris Stewart announced that his company Suredbits, in collaboration with Crypto Garage, had begun work on a specification for DLCs. In February, Suredbits engineer Nadav Kohen followed up with the first working code. And by September, Suredbits and Crypto Garage had developed their software to the point where it could be used: Stewart and Bitcoin developer Nicolas Dorier engaged in Bitcoin’s first-ever DLC to bet on the outcome of the U.S. presidential election. Stewart, who’d bet on Biden, claimed his winnings in December.

Holding Is Getting Safer With Bitcoin Vaults

The long list of exchange hacks and other bitcoin heists are testament to the fact that securely storing private keys continues to be a challenge, especially where many coins are at stake.

But more secure solutions to store coins are in development. Bitcoin vaults — a concept dating back to 2016 — are a type of smart contract that secure coins so that it takes several confirmed transactions and a time delay to really spend them. This gives potential victims the opportunity to revert a heist before it is too late.

2020 saw the release of two types of vault prototypes.

The first vault prototype was announced by Bitcoin Core contributor Bryan Bishop in April. In short, Bishop’s design is based on a pre-signed (and not-yet-broadcast) transaction that spends (some of) the coins from the vault to a user’s regular (“hot”) wallet with a time-lock delay, while an alternative spending option without a timelock can redirect the coins to an alternative address; perhaps a new and even more secure vault. Importantly, the private key used to sign the pre-signed transactions is deleted when the vault is created, so an attacker could only ever steal the pre-signed transaction itself.

The setup makes it exceedingly difficult for an attacker to claim the coins. Even if the pre-signed transaction is stolen, the thief could merely spend the coins to the hot wallet, and if the victim doesn’t trust the security of his hot wallet he can use the baked-in time delay to move the coins to the extra-secure address instead. (To prevent the thief from stealing the coins by simply compromising the hot wallet and waiting patiently until the vault user sends his coins there, Bishop’s design only lets users withdraw from the vault in small chunks at the time.)

A little later in April, Bitcoin developer Antoine Poinsot announced an alternative Vault demo which he designed with Chainsmiths CEO Kevin Loaec, called Revault. Revault resembles Bishop’s Vaults in some ways, like its use of pre-signed transactions, but is specifically designed for multi-user setups, using a multisig address. Revault lets a predetermined subset of a group of users spend coins from the vault to a hot wallet, also with a time-delay. Any vault participant can use this time-delay to return the funds to the vault if they disagree with the spend, however, or they can redirect the funds to an alternative extra secure address if they don’t trust what’s going on at all.

In addition, Revault requires that upon withdrawing from the vault, when the time-lock kicks in, users immediately create a transaction from the hot wallet, which also requires a server to co-sign. The server is programmed to sign any transaction, but never a conflicting transaction, so if an attacker compromised (both the vault and) the hot wallet, they would have to try and claim the coins before anyone else and before the time-lock expires. This should make it obvious if the hot wallet is compromised, alarming the group of Revault users, and allowing them to redirect the funds before time-lock expiry.

Taproot Is Now Good To Go, As Activation Is Under Consideration

Taproot is set to be the first Bitcoin protocol upgrade since Segregated Witness activated in August 2017. First proposed by Bitcoin Core contributor Gregory Maxwell in January 2018, Taproot lets users “hide” smart contracts in regular-looking Bitcoin transactions: complex multisig construction could be indistinguishable from a simple payment.

The Taproot upgrade would also include the Schnorr Signature algorithm. Many cryptographers consider the Schnorr signature scheme to be the best in the field, as its mathematical properties offer a strong level of correctness, it doesn’t suffer from malleability and is relatively fast to verify. Schnorr’s “linear math” would also allow for a range of new possibilities, like more compact types of multisig solutions, nifty smart contract setups and, of course, Taproot itself.

After continued development throughout 2020, Taproot’s code was merged into the Bitcoin Core codebase in October, and will be part of Bitcoin Core 0.21.0, which is set to be released any day now, with release candidates currently available. Bitcoin Core 0.21.0 will not include activation logic for Taproot, however. This will likely be included in an upcoming minor Bitcoin Core release (probably Bitcoin Core 0.21.1).

The activation logic has itself been a topic of discussion throughout much of 2020, however, with a range of potential activation mechanisms under consideration. Most of these would initially leverage hash power coordination, to eventually reach a deadline where the upgrade activates even without hash power support. But as an October poll published by Bitcoin Core contributor AJ Towns made clear, not all Bitcoin Core contributors agree that the deadline should be pre-programmed, or how far out the deadline should be (as well as some other minor disagreements).

But regardless of which activation mechanism is ultimately chosen, it seems increasingly likely that Taproot can be activated smoothly through hash power coordination. In November, major mining pool Poolin launched an initiative encouraging other mining pools to voice their opinion on Taproot and Taproot activation. The response so far is very favorable of Taproot, with over 90 percent of total hash power in support, and no mining pools opposing the proposed upgrade.

For an even more extensive and detailed summary of Bitcoin’s 2020 tech developments, also see the Bitcoin Optech 2020 Year-in-Review Special.

The post Bitcoin’s 2020 In Tech appeared first on Bitcoin Magazine.

Filed Under: Bitcoin Magazine, coinswap, dlcs, English, EOY 2020, lightning network, minsc, Payjoin, Taproot, technical, vaults, Watchtowers

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