# [bitcoin-dev] Safer NOINPUT with output tagging

Johnson Lau jl2012 at xbt.hk
Sat Feb 9 16:48:40 UTC 2019

```In a 3 parties channel, let’s say the balance for A, B, C is 2, 3, 6BTC respectively, there are few ways they could make the settlement tx.

The first type we may call it “simple settlement”, which has 3 outputs with A=2, B=3, C=6.

The second type we may call it “fully combinatorial settlement”, which has 3 outputs with (A & B), (B & C), and (A & C). The value distribution is flexible, but never exceed the total balance of the involved parties. For example, (A & B) may have any value between 0 and 5BTC. For the following example, I will use (A & B) = 3; (B & C) = 6; (A & C) = 2, but there are infinitely many valid combinations.

The third type we may call it “partially combinatorial settlement”. It may have 2 multi-sig outputs, for example, (A & B) = 4 and (B & C) = 7; or 1 multi-sig output and 1 single-sig output, for example, (A & B) = 5 and C=6 (known as "semi-cooperative channel closing” SCCC in my last post)

I’ll just focus on the fully combinatorial settlement. The partial type works in the same way, with benefits and limitations.

In a combinatorial settlement, the multi-sig outputs are actually eltoo-style scripts. Therefore, A and B will further distribute the value of (A & B) by a 2-party eltoo channel (“branch channels"). Again, there are infinitely many valid ways to distribute the values. If the AB branch channel is distributed as A=1 and B=2, then the BC channel must be B=1 and C=5, and the AC channel must be A=1 and C=1.

A clear benefit of this model is that any 2 parties could trade with each other, in the absence of any other party(s), as long as there is enough liquidity in their branch channel. There is also no way to “fork” the state, because liquidity is restricted to each branch channel. In some way, this is like the existing lightning network where the 3 parties have direct channel with each other. However, this is superior to lightning network, because when the 3 parties are online simultaneously, they could re-distribute the channel capacities without closing any channels. They could even change it to a partially combinatorial settlement. If they find that A and C rarely trade with each other, they could remove the (A & C) output, and improve the capacities of the remaining channels. If C is going offline for a week, they could make it (A & B), C, (aka. SCCC) which will maximise the capacity of the AB branch channel, and minimise the cost in case C is not coming back.

A problem with combinatorial settlement is the increased costs of uncooperative settlement. It is more expensive, as more parties are missing. Simple settlement has the same settlement cost for any number of missing party. However, even if one party is missing, a simple settled channel will cease to function and force an immediate on-chain settlement. In combinatorial settlement, the surviving parties may keep trading, may or may not with reduced capacity depending on the exact settlement model, and in the meantime hope that the missing parties may return.

It requires 6 outputs for 4 parties doing fully combinatorial settlement, 10 outputs for 5 parties, 15 outputs for 6 parties, etc. However, in a many parties situation, not every parties might want to trade with all the other parties, and those branch channels might be omitted to improve the capacities of the other channels. If some pairs want to trade without a direct branch channel, they might try to find a third (internal) party to forward the tx. When the next time all parties are online, they could rearrange the branch channel capacities at no cost.

The combinatorial settlement model could be generalised to a hierarchical settlement model, where we might have 4 settlement outputs (A&B&C), (A&B&D), (A&C&D), (B&C&D) for a 4-party channel, and each settlement output will have 3 branch channels. If A is missing, for example, we will still have one BC branch channel, one BD branch channel, one CD branch channel, and one BCD 3-party branch channel. The benefit of having a BCD 3-party branch channel is the 3 parties could rearrange the channel capacities without involving A. Let’s say D is going for vacation, he could do a SCCC in the BCD branch channel to maximise the capacity of its BC channel. Without the involvement of A, however, the capacities of the other BC, BD, and CD branch channels are not modifiable, and B and C’s balance in the BD/CD channels are frozen during the absence of D.

As the number of parties increase, the number of settlement txs will grow factorially in a fully hierarchical settlement model, and will soon be out-of-control. The result could be catastrophic if many parties are gone. So the group needs to continuously evaluate the risks of each party being missing, and modify the settlement model accordingly.

> On 9 Feb 2019, at 6:01 PM, Alejandro Ranchal Pedrosa via bitcoin-dev <bitcoin-dev at lists.linuxfoundation.org> wrote:
>
> Hi all,
>>
>> 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.
>>
> An eltoo-like protocol that works (without going on-chain) if you can't predict in advance who will become absent would be a childchain. If the off-chain protocol can continue updating in the abscence of other parties, it means that other parties' signatures must not be required when they are not involved in the off-chain state update. If other parties' signatures must not be required, there must be a way of having a common verifiable 'last state' to prevent a party to simultaneously 'fork' the state with two different parties, and double-spend. A solution for this is a childchain for Bitcoin. An example of this is what is known as a 'Broken Factory' attack [1] (https://bitcoin.stackexchange.com/questions/77434/how-does-channel-factory-act/81005#81005)
>
>> 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.
>
> I believe that in many cases other parties won't be able to continue until the unresponsive parties go back online. That might be true in particular scenarios, but generally speaking, the party might have gone unresponsive during a factory-level update (i.e. off-chain closing and opening of channels), while some parties might have given out their signature for the update without receiving a fully signed transaction. In this case they do not even know which channel they have open (the one of the old state that they have fully signed, or the one for the new state that they have given out their signature for). This is known as a 'Stale Factory', and can be exploited by an adversary in a 'Stale Factory' attack [1]. Even if they knew which state they are in (i.e. the party went unresponsive but not during a factory-level update), some of them might have run out of funds in some of their channels of the factory, and might want to update, while they will not be willing to wait for a party to go back online (something for which they also have zero guarantees of).
>
> An eltoo-like protocol that works (allowing going on-chain) if you can't in advance who will become absent, then this is precisely why 'Transaction Fragments' have been suggested. They allow an eltoo-like protocol even when one cannot predict in advance who will become absent, or malicious (by publishing invalid states), cause the non-absent parties can unite their fragments and create a valid spendable factory-level transaction that effectively kicks out the malicious parties, while leaving the rest of the factory as it was. To the best of my understanding, the eltoo original proposal also allows this though.
>
> Best,
>
> Alejandro.
>
> [1]: Scalable Lightning Factories for Bitcoin, https://eprint.iacr.org/2018/918.pdf
>
>
> On 08/02/2019 20:01, Jonas Nick via bitcoin-dev wrote:
>> 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?
>>> _______________________________________________
>>> bitcoin-dev mailing list
>>> bitcoin-dev at lists.linuxfoundation.org
>>> https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-dev
>>>
>> _______________________________________________
>> bitcoin-dev mailing list
>> bitcoin-dev at lists.linuxfoundation.org
>> https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-dev
> _______________________________________________
> bitcoin-dev mailing list
> bitcoin-dev at lists.linuxfoundation.org
> https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-dev

```