[Lightning-dev] Interactive tx construction and UTXO privacy, some thoughts

lisa neigut niftynei at gmail.com
Tue Jun 29 02:21:58 UTC 2021

Hey all,

The dual-funding proposal has been up for a while now, and while we've had
some really great reviews from a few people (@ariard + @rustyrussell thanks
your comments in particular).

As a refresher, the PR is available here:

I wanted to make a quick summary of some of the biggest objections to
the protocol. Most of these were made during the course of the 2018 spec
meeting in Adelaide and while we've done a decent job of architecting
around them,
I wanted to make them explicit.

If there's more to add, please do.

## Point One
One: dual-funding (really the collaborative transaction protocol) requires
you to share your UTXO set with the channel peer.

This is true, in a 'limited' sense, where 'UTXO set' is actually constricted
to 'UTXOs you're using for funding transactions'.

On the face of it, this seems to be quite concerning to folks.  Here's a
few things
that I think make this less concerning than it might appear at the outset.

First, let's consider the current opening case. You (or your channel peer)
constructs a transaction and shares the TXID and outpoint that the funding
output can be found at. This transaction is published and mined,
after the transaction is at sufficient depth a gossip announcement
is broadcast to the entire network, explaining where the transaction can be

Under the current protocol, it's reasonable\* to conclude that
every UTXO in the funding transaction belongs to a single party, the opener.

Assuming that all the UTXOs in your wallet will, at some point, end up
in a lightning channel, all of your UTXOs will be *publicly* associated with
your node at some point (in the current model). Your UTXO set is only
private in the present, given a long enough time period (and channel opens)
they will all be tied to your node.

For this reason, it's probably not a great idea to fund wallets using a
separate wallet that hasn't been coinjoined or otherwise obfuscated. In
fact, I think you can make a fairly decent argument (under the existing UTXO
model) for not mixing lightning funds with any funds you wish to remain
private/unassociated to an 'entity'.

Given that you're currently telling everyone what UTXOs your node owns
(or at least has a 50/50 chance of owning..) let's consider the interactive
transaction protocol.
Assuming a 2-party dual-funded open, as an outside observer it's much more
difficult to tell which
UTXOs belong to who (though you can probably guess given input amounts and
change outputs; maybe a good heuristic for opens is to use whole UTXOs).

In this on-chain respect, the dual-funding protocol is no worse, and in the
best case much
better for on-chain coin-analysis heuristics than the current protocol.

\* There are a few clear exceptions where other protocols (such as Pool,
have been developed that make this heuristic bunk as they *also* build a
transaction, however afaik all of these other protocols (joinmmarket, pool)
still require sharing
your UTXOs with another (trusted) party, difference is you know in theory
where "the Pool
auctioneer" lives, whereas you don't really know much about "any random
node that wants to open
a channel". Seems like there might be some room in this space for better
about prospective channel peers...

## Point Two
Two: an active prober can use the interactive transaction protocol to
discover your wallet's entire UTXO set.

Given the assumption that all of your node funds will, at some point,
be used to open a lightning channel, a single attacker discovering a subset
of your UTXOs is simply a 'fast-forward' of what will eventually become
public information.

That being said, much smarter minds (e.g. JoinMarket, which suffers from
a very similar issue in what I would argue an even more privacy-conscious
context) than mine have employed the PoDLE protocol to make the discovery
of every UTXO more costly for a potential attacker. This is something
 we can add quite trivially to the protocol, at the cost of grossly
the gossip traffic.

Worth noting that even without PoDLE you can much slow this type of
attack by reusing the same UTXO across every open attempt, being choosy
about which peers you do offer liquidity up to (do they have other
channels? what's their uptime?) etc.

A dedicated attacker could probably figure out your UTXO set, but that's not
much different from the current system; the only difference is the span of
it takes them to figure it out.

## Things We've Done to Counter This:
I had the pleasure of finally meeting Nadav of SuredBits and DLC fame in
a few weeks ago. The DLC team has adopted a version of the interactive
transaction protocol for their own purposes. Nadav pointed out that the
protocol we landed on for lightning interactive construction transactions
is *quite* interactive; the DLC version modified it to use batching to
transmit the input/output sets (the interactive protocol is one-by-one).

The rationale for doing the addition of inputs and outputs in a non-batched
fashion is that this allows for you to interleave UTXOs from a variety
of sources, for example multiple channel opens in the same tx. With the
protocol, you can initiate a dual-funded open with many peers at the same
each of which may contribute UTXOs and outputs for their own respective
channel opens or UTXO consolidations etc.

This gives us the real possibility of doing multiparty coinjoins on
In fact, this is currently possible with c-lightning *today* using
the multifundchannel command (h/t to ZmnSCPjx for the original framework
for multifund opens).

As written, the interactive transaction protocol is exceedingly flexible.
We traded off succinctness for some plausible deniablity wrt
any UTXOs you send to any peer -- are they yours or are they
some third party's? How to tell?

I think it's interesting to point out that "succinctness" in rounds
of required interaction is typically a *highly* desirable trait for
any cryptographic protocol. The establishment of a lightning channel
however, isn't a cryptographic signature. A lightning channel, by its very
nature, is typically a highly interactive relationship between two peers.
Increasing the rounds of messaging required to establish the channel doesn't
change the overall interactivity profile of a channel's operation, thus
adding rounds of comms to channel open is generally a no-op in terms of
performance/uptime requirements of a node's operations.

## How important is UTXO privacy on lightning?
Obviously important. But given that the real transactions happen inside
of channels, invisibly, and that your public channels really truly
are public via the gossip protocol the much more important "thing" in the
lightning arena isn't your UTXO privacy so much as *not* associating your
identity with your node.

## Does Taproot fix this?
I'm not up to date enough on the progress of Taproot scripts, however,
assuming the current requirement that every routing node is able to
verify the opening output script via the signatures provided
in the channel_announcement, it seems reasonable that on-chain transactions
will still be assignable to a node given gossip data. (Purely on-chain
will be stymied, however.)

# In Exitus
There are legitimate concerns regarding sharing UTXOs with other peers
in the process of opening a channel. The current protocol, as implemented,
introduces a mechanism for some plausible deniability wrt who those UTXOs
actually belong to, as well as providing the tools for building multi-party
coinjoins as
opens. Further, with PoDLEs, we can at least achieve a similar level of
as JoinMarket currently enjoys.

Finally, regardless of what open mechanism you're using, it's worth
that best practice is to not *ever* tie your identity to your lightning
And it may be worth reconsidering what wallet source you're using to fund
announced channel opens.
-------------- next part --------------
An HTML attachment was scrubbed...
URL: <http://lists.linuxfoundation.org/pipermail/lightning-dev/attachments/20210628/71a44fbe/attachment-0001.html>

More information about the Lightning-dev mailing list