bsips/bsip-0000.md

BSIP: xxxx
Title: Hashed Time-Lock Contract
Authors: John M. Jones, Ryan R. Fox, taconator
Status: Draft
Type: Informational
Created: 2018-08-22
Discussion: TBD\

Abstract

This BSIP describes an implementation of a Hashed Time-Locked Contract (HTLC) operation.

Motivation

The ability to securely hold tokenized assets within a Hashed Time-Locked Contract (HTLC) on the BitShares blockchain is a desirable feature that could be used by many persons, services, and businesses to mitigate risks between participants. HTLC implement conditional transfers, whereby a designated party (the "recipient") will reveal the preimage of a hash in order to execute the asset transfers from a second party (the "depositor"), else after time lock expiry "depositor" may retrieve their assets. No third-party escrow agent is required, rather the HTLC operation enforces execution through the BitShares consensus protocol.

Rational

Elements of an HTLC

An HTLC is defined to have the following components:

• Parties to the HTLC

  • The depositor

  • The recipient

• Escrow Asset

  • Asset symbol

  • Asset quantity

• Conditions

  • Hash lock

    • Preimage (the secret)

    • Preimage hash (hash of the preimage)

    • Length of the preimage hash

  • Time lock

    • Timeout threshold (expiry)

• Condition Evaluators

• Fee

Parties

Two parties must be defined for an HTLC: one depositor, and one recipient. Note that a proposal transaction may be used for tasks such as multi-signature, but the end result at approval is still one depositor and one recipient.

Escrow Asset

An HTLC involves a conditional transfer of ownership of a quantity of an asset from a designated party (the "depositor") to the second party (the "recipient"). The HTLC holds the designated escrow assets from depositor on the blockchain and will continue to enforce the specified conditions until one is satisfied.

Conditions

There are two competing conditions within an HTLC, the hash lock and the time lock.

The HTLC contains a hash lock condition, which are both the preimage hash and its length, barring the transfer of held escrow assets unless satisfied. If a preimage of requisite length is provided to the HTLC which generates a hash matching the preimage hash, the preimage is then stored within the blockchain, and the escrow assets are transferred to the recipient.

If a satisfactory preimage is not provided to the HTLC before the stipulated time lock expires, the depositor may request the return of escrow assets. The HTLC will only evaluate transfer request from depositor and after timeout threshold, then return escrow assets to depositor.

Condition Evaluators

The preimage can be thought of a secret key, that will eventually be shared with the recipient. This can be a word, a phrase, or even a random series of bytes. The length of the preimage must be shared and stored within the HTLC at creation.

Upon presentation of a preimage, the HTLC condition evaluator validates:

1. That the timeout threshold has not yet occurred.

2. That the preimage length matches the specified length.

3. That the hash of the preimage matches the specified preimage hash.

If all evaluations succeed, the escrow assets are transferred to the recipient. If any evaluation fails, nothing happens; the HTLC remains ready to evaluate the next preimage.

Upon presentation of a request from the depositor for return of escrow assets, the HTLC condition evaluator validates that the timeout threshold is now in the past. It then returns the escrow assts to depositor.

Timing of Condition Evaluation

The timeout threshold of the contract is defined by depositor within the HTLC at creation. It can be any time in the future and should allow enough time for recipient to review the HTLC and provide the preimage. Further, it should not be set too far into the future to mitigate against an unresponsive recipient impacting depositor, as their escrow assets will be locked until timeout threshold expiry. The accuracy is based on when the condition evaluator runs, and should be considered accurate ± 15 seconds.

Early Termination of an Escrow Contract

To protect the recipient, early termination of an HTLC is not allowed by any party. Placing a timeout threshold far into the future is valid. User protection from locking up funds for an extremely long period could be provided by the UI used to create the HTLC.

TODO: Consider adding an Update_HTLC operation to allow depositor to extend the timeout threshold

Automatic Transfers Upon Expiry

Upon expiry of the timeout threshold, the escrow assets held within the HTLC will not automatically be returned to depositor. A separate transaction must be initiated by the depositor to request escrow assets be transferred to depositor.

Code could be added to automate the return of funds. This could be part of block production or maintenance. However, this will cause extra load on those processes. Hence, it is felt that requiring action by the depositor is the best option.

Fee

Creating and fulfillment are two operations that add data to the blockchain. The fees for these operations are based on the standards set for blocks, and are similar to costs of other items stored on-chain.

TODO: Discuss fees may be variable it is possible to store variable length preimage hash.

Existing Escrow Proposals

The section describes various escrow concepts that have been proposed either for BitShares or for other blockchains or services in terms of the elements that have been defined above. This is intended to provide some background and comparison to the concepts that follow.

TODO: Elaborate Interledger

Existing Graphene Features that are Similar to What is Needed for Blockchain Escrowing

BitShares Escrow

A separate BSIP is currently being discussed that provides a more traditional escrow service. This involves parties, agents, and a more complex evaluation. HTLC shares some similarities, and could be considered a thin subset of Bitshares Escrow.

The smaller, well-defined nature of HTLC provides a major advantage for applications that want to attempt tasks such as cross chain atomic swaps.

BitShares Multi-Signature Account

One of the existing features of BitShares is the ability to have an account that requires multiples signatures by differently authorized parties [cite] and even hierarchical authorizations. Using this mechanism as a form of escrow is possible. But there are many limitations. More information on escrow and multi-signatures can be found in the BitShares Escrow BSIP.

BitShares Proposals

One of the existing features of BitShares is the ability to have a proposal that is recorded on the blockchain and awaits the authorization of the requisite parties (e.g. M-of-N signatures). If the required authorizations are not given by the proposal expiry then no transfer will occur. This feature also contains many limitations when compared to HTLC.

Specifications

Possible Concepts to Implement

The following will describe possible concepts that could be implemented in BitShares.

Set-Price Swap

Two parties may agree on an asset swap at a set price, without using the exchange. Two HTLC contracts with the same hash can provide a trustless exchange of assets

Business Approach

Party A (Alice) generates an HTLC with a preimage of her choice. The contract stipulates that she will deposit 100 bitUSD into the account of Party B (Bob), if he provides the preimage that generates the stored hash before 10AM tomorrow. She then shares the contract identifier with Bob.

Bob examines the contract Alice created, being sure to examine that the receiving account, the amount, and the timeout agrees with his desires. He then generates another HTLC that will deposit 10,000 bitshares into the account of Alice, if she provides the preimage that generates the same hash before 5pm today. He then shares the contract identifier with Alice.

Alice now examines the contract Bob created, being sure to examine that the receiving account, the amount, and the timeout agrees with her desires. She also verifies that the hash matches the hash of her contract. She now uses her preimage to "unlock" Bob's contract, which puts 10,000 bitshares into her account. This also posts the preimage on the BitShares blockchain. NOTE: She must do this before 5PM. Otherwise, Bob may (and should) reclaim the funds in the contract he created.

Bob can now see the preimage that Alice used to receive her bitshares, and he can use the same preimage to "unlock" the contract Alice created, and receive the 100 bitUSD. NOTE: He must do this before 10AM tomorrow. Otherwise, Alice may (and should) reclaim the funds in the contract she created.

Cross-Chain Swap

The set-price swap mentioned above works the same across chains that support HTLC. Bitcoin, as an example, supports HTLC.

Business Approach

Alice generates an HTLC on the BitShares blockchain with a preimage of her choice. The contract stipulates that she will deposit 1 bitBTC into the account of Bob, if he provides the preimage that generates the stored hash before 10AM tomorrow. She then shares the contract identifier with Bob.

Bob examines the contract Alice created, being sure to examine that the receiving account, the amount, and the timeout agrees with his desires. He then generates an HTLC that will deposit 1 BTC into the Bitcoin address of Alice, if she provides the preimage that generates the same hash before 5pm today. He then shares the Bitcoin transaction identifier with Alice.

Alice now examines the contract Bob created, being sure to examine that the receiving account, the amount, and the timeout agrees with her desires. She also verifies that the hash matches the hash of her contract. She now uses her preimage to "unlock" Bob's contract, which puts 1 BTC into her Bitcoin wallet. This also posts the preimage on the Bitcoin blockchain. NOTE: She must do this before 5PM. Otherwise, Bob may (and should) reclaim the funds in the contract he created.

Bob can now see the preimage that Alice used to receive her Bitcoin, and he can use the same preimage to "unlock" the contract Alice created, and receive the 1 bitBTC. NOTE: He must do this before 10AM tomorrow. Otherwise, Alice may (and should) reclaim the funds in the contract she created.

Discussion

Summary for Shareholders

TBD

Copyright

This document is placed in the public domain.

See Also

A description of Hashed Timelock Contracts