Output tagging may result in reduced fungibility in multiparty eltoo channels.
If one party is unresponsive, the remaining participants want to remove
the party from the channel without downtime. This is possible by creating
settlement transactions which pay off the unresponsive party and fund a new
channel with the remaining participants.
When the party becomes unresponsive, the channel is closed by broadcasting the
update transaction as usual. As soon as that happens the remaining
participants can start to update their new channel. Their update signatures
must use SIGHASH_NOINPUT. This is because in eltoo the settlement txid is not
final (because update tx is not confirmed and may have to rebind to another
output). Therefore, the funding output of the new channel must be NOINPUT
tagged. Assuming the remaining parties later settle cooperatively, this loss
of fungibility would not have happened without output tagging.
funding output update output
settlement outputs update output
[ A & B & C ] -> ... -> [ (A & B & C & state CLTV) | (As & Bs & Cs) ] -> [
NOINPUT tagged: (A' & B'), -> ...
C' ]
If the expectation is that the unresponsive party returns, fungibility is
not reduced due to output tagging because the above scheme can be used
off-chain until the original channel can be continued.
Side note: I was not able to come up with an similar, eltoo-like protocol that
works
if you can't predict in advance who will become absent.
On 12/13/18 12:32 PM, Johnson Lau via bitcoin-dev wrote:
> NOINPUT is very powerful, but the tradeoff is the risks of signature replay.
> While the key holders are expected not to reuse key pair, little could be
> done to stop payers to reuse an address. Unfortunately, key-pair reuse has
> been a social and technical norm since the creation of Bitcoin (the first tx
> made in block 170 reused the previous public key). I don’t see any hope to
> change this norm any time soon, if possible at all.
>
> As the people who are designing the layer-1 protocol, we could always blame
> the payer and/or payee for their stupidity, just like those people laughed at
> victims of Ethereum dumb contracts (DAO, Parity multisig, etc). The existing
> bitcoin script language is so restrictive. It disallows many useful smart
> contracts, but at the same time prevented many dumb contracts. After all,
> “smart” and “dumb” are non-technical judgement. The DAO contract has always
> been faithfully executed. It’s dumb only for those invested in the project.
> For me, it was just a comedy show.
>
> So NOINPUT brings us more smart contract capacity, and at the same time we
> are one step closer to dumb contracts. The target is to find a design that
> exactly enables the smart contracts we want, while minimising the risks of
> misuse.
>
> The risk I am trying to mitigate is a payer mistakenly pay to a previous
> address with the exactly same amount, and the previous UTXO has been spent
> using NOINPUT. Accidental double payment is not uncommon. Even if the payee
> was honest and willing to refund, the money might have been spent with a
> replayed NOINPUT signature. Once people lost a significant amount of money
> this way, payers (mostly exchanges) may refuse to send money to anything
> other than P2PKH, native-P2WPKH and native-P2WSH (as the only 3 types without
> possibility of NOINPUT)
>
> The proposed solution is that an output must be “tagged” for it to be
> spendable with NOINPUT, and the “tag” must be made explicitly by the payer.
> There are 2 possible ways to do the tagging:
>
> 1. A certain bit in the tx version must be set
> 2. A certain bit in the scriptPubKey must be set
>
> I will analyse the pros and cons later.
>
> Using eltoo as example. The setup utxo is a simple 2-of-2 multisig, and
> should not be tagged. This makes it indistinguishable from normal 1-of-1
> utxo. The trigger tx, which spends the setup utxo, should be tagged, so the
> update txs could spend the trigger utxo with NOINPUT. Similarly, all update
> txs should be tagged, so they could be spent by other update txs and
> settlement tx with NOINPUT. As the final destination, there is no need to tag
> in the settlement tx.
>
> In payer’s perspective, tagging means “I believe this address is for
> one-time-use only” Since we can’t control how other people manage their
> addresses, we should never do tagging when paying to other people.
>
> I mentioned 2 ways of tagging, and they have pros and cons. First of all,
> tagging in either way should not complicate the eltoo protocol in anyway, nor
> bring extra block space overhead.
>
> A clear advantage of tagging with scriptPubKey is we could tag on a
> per-output basis. However, scriptPubKey tagging is only possible with
> native-segwit, not P2SH. That means we have to disallow NOINPUT in
> P2SH-segwit (Otherwise, *all* P2SH addresses would become “risky” for payers)
> This should be ok for eltoo, since it has no reason to use P2SH-segwit in
> intermediate txs, which is more expensive.
>
> Another problem with scriptPubKey tagging is all the existing bech32
> implementations will not understand the special tag, and will pay to a tagged
> address as usual. An upgrade would be needed for them to refuse sending to
> tagged addresses by default.
>
> On the other hand, tagging with tx version will also protect P2SH-segwit, and
> all existing wallets are protected by default. However, it is somewhat a
> layer violation and you could only tag all or none output in the same tx.
> Also, as Bitcoin Core has just removed the tx version from the UTXO database,
> adding it back could be a little bit annoying, but doable.
>
> There is an extension to the version tagging, which could make NOINPUT even
> safer. In addition to tagging requirement, NOINPUT will also sign the version
> of the previous tx. If the wallet always uses a randomised tx version, it
> makes accidental replay very unlikely. However, that will burn a few more
> bits in the tx version field.
>
> While this seems fully compatible with eltoo, is there any other proposals
> require NOINPUT, and is adversely affected by either way of tagging?
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