Hi ZmnSCPxj,

Thank you for taking the time to respond, these are very good points.
Responses inline.

On Tue, Jun 23, 2020 at 12:48 PM ZmnSCPxj <zmnsc...@protonmail.com> wrote:

> Good morning Itay, Ittay, and Matan,
> I believe an unstated assumption in Bitcoin is that miners are
> short-sighted.
> The reasoning for this assumption is:
> * Deployment of new mining hardware controlled by others may occur at any
> time you do not control.
>   * Thus, any transactions you leave on the table are potentially taken by
> somebody else and not by you.
>   * Sudden changes in hashpower distribution may reduce your expected
> future earnings, so any future theoretical earnings should be discounted
> (*in addition to* expected return-on-investment on getting money you can
> invest *now*).

Our analysis assumes constant difficulty, i.e., no significant changes of
the miners set. Indeed, hash-rate changes typically occur at a much larger
granularity than your average HTLC timeout. For instance, we noticed plenty
of lightning nodes use timeouts of a day. So, we do not consider
optimization at infinity, just a day ahead, and within this time frame all
the factors you mentioned are not expected to dramatically change.

That being said, it would be interesting to analyze the effect of miners
joining during the HTLC duration. Intuitively, this shouldn’t affect the
results, as those new miners have the same incentive to wait for the
higher-paying tx.

> It also strikes me that, in a world with RBF and CPFP, the same endpoint
> (i.e. miners earn the entire fund of the HTLC) is achieved by existing
> HTLCs, without the additional branch and script opcodes needed by MAD-HTLC.
> For example, if an HTLC is confirmed but the hashlock-claiming transaction
> is not being confirmed (because miners are holding it up because Bob is
> offering a much higher fee in the future for the timelock-claiming
> transaction), then Alice can, regardless of the reason why it is not being
> confirmed, bump up the fee with RBF or CPFP.
> If the fee bump offered by Alice is sufficiently large, then miners will
> start re-preferring the Alice hashlock transaction.
> To counter this, Bob has to bid up its version higher.
> As the timeout approaches, Alice can bump up its fee until it is just 1
> satoshi short of the total fund.
> It is rational for Alice to do so since at timeout, it can expect to lose
> the entire fund.
> In order for Bob to win, it has to beat that fee, at which point it equals
> or exceeds the total fund, and miners get the total fund (or more).
> Knowing this end-point, rational Bob will not even begin this game.
> I think this research considers these two endpoints to be distinct:
> * Bob misbehaves and the entire fund is punished by miners, leaving miners
> with the fund and Alice and Bob without money (MAD-HTLC).
> * Bob misbehaves, Alice counters, and the ensuing fee war leads to fees
> approaching the fund value, leaving miners with the fund and Alice and Bob
> without money (standard HTLC).
> But in practice I think both endpoints are essentially equivalent.

These are not the same scenario, since in HTLC there is a race between
Alice and Bob. Alice might not wish to pay the full HTLC amount once she
sees Bob is trying to cheat. She could wait until close to the timeout so
as to reduce the time Bob can respond. Of course Bob would do the same. So
this is an actual race, and Bob takes no risk since his payment is all from
the HTLC amount. Mutual destruction is only assured under certain
assumptions in HTLC. MAD-HTLC achieves security without relying on such

> --
> What MAD-HTLC can do would be to make different claims:
> * Inputs:
>   * Bob 1 BTC - HTLC amount
>   * Bob 1 BTC - Bob fidelity bond
> * Cases:
>   * Alice reveals hashlock at any time:
>     * 1 BTC goes to Alice
>     * 1 BTC goes to Bob (fidelity bond refund)
>   * Bob reveals bob-hashlock after time L:
>     * 2 BTC goes to Bob (HTLC refund + fidelity bond refund)
>   * Bob cheated, anybody reveals both hashlock and bob-hashlock:
>     * 2 BTC goes to miner
> This is an actual improvement over HTLC: Bob misbehavior leads to loss of
> the fidelity bond.
> The above cases can be assured by requiring both Alice and Bob to sign in
> the alice-hashlock branch, so that the splitting of the fund is enforced,
> and SegWit signing so that the dependent transaction is signed before the
> HTLC-funding transaction is.
> It can also be implemented with `OP_CHECKTEMPLATEVERIFY`.

The cases you present are exactly how MAD-HTLC works. It comprises two
contracts (UTXOs):
* Deposit (holding the intended HTLC tokens), with three redeem paths:
    - Alice (signature), with preimage "A", no timeout
    - Bob (signature), with preimage "B", timeout T
    - Any entity (miner), with both preimages "A" and "B", no timeout
* Collateral (the fidelity bond, doesn't have to be of the same amount)
    - Bob (signature), no preimage, timeout T
    - Any entity (miner), with both preimages "A" and "B", timeout T

Only Bob initially knows preimage "B", and is required to reveal it if he
wishes to get the Deposit tokens.

Consider first the case where Alice publishes preimage "A": Bob can safely
publish preimage "B" and get both the Deposit and Collateral tokens after
the timeout.
Now, consider the case where Alice does not publish preimage "A": If Bob
publishes preimage "B" he gets nothing (and so does Alice - this is the
mutual assured destruction), and if he doesn't, he gets the Collateral

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