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A crazy thing with Taproot is: A company could create a virtual bank to handle all transfers with its suppliers by doing a single onchain transaction. From th

by TekMol 5y ago

A crazy thing with Taproot is: A company could create a virtual bank to handle all transfers with its suppliers by doing a single onchain transaction. From the outside, it would look like a normal "Someone sent some coins from address A to address B" transaction. But internally, a key needed to spend the funds is only valid if the company and all of its suppliers sign it. This means every time there is a transaction between the company and one of its suppliers, the company would send out a signed message with the new spending conditions (the new balance of the company and every supplier) to the supplier network. Everyone signs it and that's it. It does not go on chain. Only if a participant becomes uncooperative, the latest state will go on chain and everyone will get what they own. So in the future, two transactions on the Bitcoin chain a few years apart could be "Someone sent something somewhere in December 2021 and then they send something somewhere in June 2025". Or it could be "BMW did ten thousand transactions with its suppliers". You don't know. Both look the same on chain. And all of the transactions were free, instant and possible 24/7.

teekert 5y ago
"And all of the transaction were free", Wait? Since when are transactions free and instant? Is that part of this upgrade? The only costs are with the "bank transaction"?
- TekMol 5y ago
  A second layer transaction does not involve the Bitcoin network. When Katy wants to pay ₿3 to Billie, Katy just sends a key (via email or some API) to Billie which enables Billie to withdraw ₿3 from the account of Katy. But Billie does not do that. Billie just keeps that message like you keep your login to your bank account. When Katy wants to pay another ₿5 to Billie, Katy sends a key to Billie which enables Billie to withdraw ₿8 from the account of Katy. Now Katy paid Billie ₿8 in two transactions. All via email, letter, telephone or - most likely - API. Nothing at all happened on the Bitcoin network.
  - piaste 5y ago
    However, if nothing happens on the Bitcoin network, then the funds aren't locked down, are they? In other words, Billie has no guarantee that the key she holds will be valid tomorrow; Katy could empty that account at any time, and Billie would then hold nothing except the evidence of Katy's wrongdoing.
    - TekMol 5y ago
      Katy could empty that account at any time That would be a pretty lame virtual bank then :) Realistically, the spending conditions are either limited by time. So Billie knows she needs to withdraw until a certain date or Katy could betray her. Or the spending conditions contain a punishment for betrayal. So if Katy tries to withdraw money she assigned to Billie, Billie can intervene, get her money and punish Katy.
    - gruez 5y ago
      > However, if nothing happens on the Bitcoin network, then the funds aren't locked down, are they? they are locked down. the funds in a lightning channel are locked in a 2 of 2 multisig address, and can only be moved upon mutual consent (ie. by updating the state of the channel), or by one party after sufficient time has passed (in case of an uncooperative peer).
      - zaptrem 5y ago
        Don't LN channels require a (quite expensive) transaction to open and close?
        gruez 5y ago
        >quite expensive Are you talking about compared to regular transactions, or because network fees (per byte) are high?
        jimmydorry 5y ago
        Quite expensive, as in $1? That $1 enables as many transactions as you want between party A and B, of which party B may have dozens of open channels with other nodes to facilitate routing from party A to C etc.
- G3rn0ti 5y ago
  Parent talks about the „Lightning Network“ — a Layer 2 scaling solution for Bitcoin. Beware: I am still a crypto noob but I am still going to try to explain how I understood the system so far. Edited: Minor terminology and typos. Roughly speaking the Lightning Network works similar to a „current account“ that businesses have between each other but does not require the actors to trust each other. The parties initiate a transaction by each one sending Bitcoin to a public multi signature address. The resulting transaction cannot be spent by any one alone. Now, this unspent transaction serves as an initial balance and opens a channel between the parties on the layer 2 network. Bitcoin may now be wired back and forth between the parties on layer 2 w/o needed to be settled individually on the Bitcoin block chain. Finally, if all parties agree by signing a second, settling transaction the resulting balance is written back to the Blockchain to whatever address the participants initially agreed upon. Theoretically, there could have been billions of Bitcoin transactions over the years on the Lightning Network which would be eventually represented by only two transactions on the chain. Now, taproot improves this scheme by introducing Schnorr signatures. Up to now every member of the multisig transaction I just talked about needed to contain the public keys of all parties which in turn needed to be verified against all their private keys. Since transactions are limited in their size, this limited the applicability of multisig transactions. Now, Schnorr signatures allow for aggregation of public keys so the transaction only needs to contain a single number instead of hundreds or thousands. Of course, this also speeds up validations of transactions. I hope this all made sense. I have yet to see practical applications of a Lightning Network „scheme“ but I heard El Salvador is using it for cheap Bitcoin transactions (although not applying Schnorr signatures yet).
  - spurgu 5y ago
    Perhaps a simplification to this would be a poker night, where at the beginning of the evening everyone puts in some real money and in return get poker chips. At the end of the night people can exchange whatever chips they have left for real money.
  - TekMol 5y ago
    Parent talks about the „Lightning Network“ I was not talking about the Lightning Network in particular. The LN is a system that does settlement on the Bitcoin blockchain. So is the "BMW and its suppliers" network I imagined. But this network is simpler and more customized to the needs of this particular use case. Of course using the LN would be a viable alternative to a custom solution.
tromp 5y ago
> the latest state will go on chain You'll need to have a revocation mechanism to punish older states being put on chain. That may not be so simple when (many) more than 2 parties are involved. > Or it could be "BMW did ten thousand transactions with its suppliers". You don't know. Amounts are still visible as well as number of entities paid by the settlement. Recipients may become identifiable through follow-up transactions or re-use of known public keys. > And all of the transactions were free All but the initial funding tx and the final settlement tx.
- TekMol 5y ago
  Yes, it will probably take years before we all settle on standardized ways of doing these things. But in theory, they are possible now. Yes, the initial tx and the final tx will provide data for forensic analysis. Yes, the initial and final tx need some time to settle (something like an hour) and cost some money (something like a few dollars at current rates).
kjrose 5y ago
How does this handle someone spending bitcoin outside of the virtual bank?
- TekMol 5y ago
  Different approaches come to mind. One is that one of the participants is a virtual bank on its own. This would be similar to the old banking system. How do you send money to someone who uses a different bank? By telling your bank to talk to their bank.
323 5y ago
BMW and it's suppliers have zero problems moving money today.
- TekMol 5y ago
  How do you know?
  - 323 5y ago
    Because there are no articles about big companies having money transfer problems with their suppliers. The complains are about the "buy now pay 90 days later" part, not about the actual money transfer.
    - TekMol 5y ago
      How hard did you try to find such articles? I would imagine the suppliers of Wirecard do see it as a problem that the $2B WireCard said it has in the bank did not exist. In a blockchain setup, they would have known it. Ducking for "supplier" and "insolvency" brings up quite a lot of stuff about this topic: https://duckduckgo.com/?q=insolvency+suppliers https://duckduckgo.com/?q=insolvency+suppliers
      - 323 5y ago
        Supplier insolvency has nothing to do with money transfer. And if you think that you can "lock bitcoin" into an account to avoid this, you obviously don't know much about how these things work. Hint: you can also "lock dollars" today, it's called "escrow". But it wasn't used in WireCard (I take your word for it, I don't know the case). Explained like I'm five: BMW will not accept it's bitcoin being locked for 90 days, so that it's supplier can be sure it will receive it's pay. Because if BMW would have accepted such a thing, it would pay today, not 90 days later. So crypto doesn't solve any problem here, because BMW doesn't want this problem solved. And today, the supplier would use "factoring" so that it can receive the money instantly, instead of 90 days later, and the bank which provides the factoring service will make sure to take it's money from BMW later. Hint: you need capital to be able to provide factoring, since it involves credit risk, so crypto can't replace that either directly (it could with some fancy smart contracts that pool liquidity and yield)
pyrale 5y ago
So basically, does that mean KYC/AML are officially dead in BTC's environment? The picture was not bright before, but with this kind of innovations, it seems impossible for this network to build banking systems that respect regulations.
- luciusdomitius 5y ago
  Have those regulations ever made any sense? If someone is involved in illegal activity, then prosecute him for that. Banks' purpose is to manage wealth, not to be policemen.
- baby 5y ago
  BTC is not built to support KYC/AML.
  - bigdubs 5y ago
    Then it's going to be weaponized to launder money and be made illegal eventually.
    - webinvest 5y ago
      BTC is less anonymous than cash.
    - baby 5y ago
      That's an argument that has been made yes.
    - vb6sp6 5y ago
      > Then it's going to be weaponized to launder money We should stick with USD. No one does anything illegal with USD
      - mikevm 5y ago
        Yes, which is why all ransomwares ask money in USD, right?
deleted 5y ago
[deleted]
lalaland1125 5y ago
How is this different from the lightning network?
- pshc 5y ago
  It sounds quite similar except it hasn’t solved the problem that Lightning has—participants can broadcast old states to rewind history. Probably should just use Lightning instead?
cgb223 5y ago
So if I’m a single supplier and I want to act as a hostile actor in order to negotiate better terms or something, does my refusing to sign mean that _all_ supplier transactions are reversed or at least slowed on chain? Is there an actual attack surface here? Also, if I’m adding a new supplier in this example, do I have to spin up an entirely new “virtual bank” to do so? Or can I just add them to the current one? What is the user experience there?
- polyomino 5y ago
  This is a new fundamental building block that would help make these types of scenarios possible. However, by the time end users get an implementation, it will likely be more complicated than a single transaction for the reasons you mention and others. Also note, as exemplified by altcoins it is always possible to trade off decentralization or security for more features.
- danlugo92 5y ago
  You will open a virtual bank with one of the big nodes, say Binance, and they will handle the rest.
m3kw9 5y ago
He’s talking about lightning network with multisig support, which I thought they always had, only that with taproot a multi signiture can be combined as one, which would look like a single person signed it
mrfusion 5y ago
Would that be useful for privacy too?

by TekMol 5y ago

teekert 5y ago

"And all of the transaction were free", Wait? Since when are transactions free and instant? Is that part of this upgrade? The only costs are with the "bank transaction"?

TekMol 5y ago
A second layer transaction does not involve the Bitcoin network. When Katy wants to pay ₿3 to Billie, Katy just sends a key (via email or some API) to Billie which enables Billie to withdraw ₿3 from the account of Katy. But Billie does not do that. Billie just keeps that message like you keep your login to your bank account. When Katy wants to pay another ₿5 to Billie, Katy sends a key to Billie which enables Billie to withdraw ₿8 from the account of Katy. Now Katy paid Billie ₿8 in two transactions. All via email, letter, telephone or - most likely - API. Nothing at all happened on the Bitcoin network.
- piaste 5y ago
  However, if nothing happens on the Bitcoin network, then the funds aren't locked down, are they? In other words, Billie has no guarantee that the key she holds will be valid tomorrow; Katy could empty that account at any time, and Billie would then hold nothing except the evidence of Katy's wrongdoing.
  - TekMol 5y ago
    Katy could empty that account at any time That would be a pretty lame virtual bank then :) Realistically, the spending conditions are either limited by time. So Billie knows she needs to withdraw until a certain date or Katy could betray her. Or the spending conditions contain a punishment for betrayal. So if Katy tries to withdraw money she assigned to Billie, Billie can intervene, get her money and punish Katy.
  - gruez 5y ago
    > However, if nothing happens on the Bitcoin network, then the funds aren't locked down, are they? they are locked down. the funds in a lightning channel are locked in a 2 of 2 multisig address, and can only be moved upon mutual consent (ie. by updating the state of the channel), or by one party after sufficient time has passed (in case of an uncooperative peer).
    - zaptrem 5y ago
      Don't LN channels require a (quite expensive) transaction to open and close?
      - gruez 5y ago
        >quite expensive Are you talking about compared to regular transactions, or because network fees (per byte) are high?
      - jimmydorry 5y ago
        Quite expensive, as in $1? That $1 enables as many transactions as you want between party A and B, of which party B may have dozens of open channels with other nodes to facilitate routing from party A to C etc.
G3rn0ti 5y ago
Parent talks about the „Lightning Network“ — a Layer 2 scaling solution for Bitcoin. Beware: I am still a crypto noob but I am still going to try to explain how I understood the system so far. Edited: Minor terminology and typos. Roughly speaking the Lightning Network works similar to a „current account“ that businesses have between each other but does not require the actors to trust each other. The parties initiate a transaction by each one sending Bitcoin to a public multi signature address. The resulting transaction cannot be spent by any one alone. Now, this unspent transaction serves as an initial balance and opens a channel between the parties on the layer 2 network. Bitcoin may now be wired back and forth between the parties on layer 2 w/o needed to be settled individually on the Bitcoin block chain. Finally, if all parties agree by signing a second, settling transaction the resulting balance is written back to the Blockchain to whatever address the participants initially agreed upon. Theoretically, there could have been billions of Bitcoin transactions over the years on the Lightning Network which would be eventually represented by only two transactions on the chain. Now, taproot improves this scheme by introducing Schnorr signatures. Up to now every member of the multisig transaction I just talked about needed to contain the public keys of all parties which in turn needed to be verified against all their private keys. Since transactions are limited in their size, this limited the applicability of multisig transactions. Now, Schnorr signatures allow for aggregation of public keys so the transaction only needs to contain a single number instead of hundreds or thousands. Of course, this also speeds up validations of transactions. I hope this all made sense. I have yet to see practical applications of a Lightning Network „scheme“ but I heard El Salvador is using it for cheap Bitcoin transactions (although not applying Schnorr signatures yet).
- spurgu 5y ago
  Perhaps a simplification to this would be a poker night, where at the beginning of the evening everyone puts in some real money and in return get poker chips. At the end of the night people can exchange whatever chips they have left for real money.
- TekMol 5y ago
  Parent talks about the „Lightning Network“ I was not talking about the Lightning Network in particular. The LN is a system that does settlement on the Bitcoin blockchain. So is the "BMW and its suppliers" network I imagined. But this network is simpler and more customized to the needs of this particular use case. Of course using the LN would be a viable alternative to a custom solution.

tromp 5y ago

> the latest state will go on chain You'll need to have a revocation mechanism to punish older states being put on chain. That may not be so simple when (many) more than 2 parties are involved. > Or it could be "BMW did ten thousand transactions with its suppliers". You don't know. Amounts are still visible as well as number of entities paid by the settlement. Recipients may become identifiable through follow-up transactions or re-use of known public keys. > And all of the transactions were free All but the initial funding tx and the final settlement tx.

TekMol 5y ago
Yes, it will probably take years before we all settle on standardized ways of doing these things. But in theory, they are possible now. Yes, the initial tx and the final tx will provide data for forensic analysis. Yes, the initial and final tx need some time to settle (something like an hour) and cost some money (something like a few dollars at current rates).

kjrose 5y ago

How does this handle someone spending bitcoin outside of the virtual bank?

TekMol 5y ago
Different approaches come to mind. One is that one of the participants is a virtual bank on its own. This would be similar to the old banking system. How do you send money to someone who uses a different bank? By telling your bank to talk to their bank.

323 5y ago

BMW and it's suppliers have zero problems moving money today.

TekMol 5y ago
How do you know?
- 323 5y ago
  Because there are no articles about big companies having money transfer problems with their suppliers. The complains are about the "buy now pay 90 days later" part, not about the actual money transfer.
  - TekMol 5y ago
    How hard did you try to find such articles? I would imagine the suppliers of Wirecard do see it as a problem that the $2B WireCard said it has in the bank did not exist. In a blockchain setup, they would have known it. Ducking for "supplier" and "insolvency" brings up quite a lot of stuff about this topic: https://duckduckgo.com/?q=insolvency+suppliers https://duckduckgo.com/?q=insolvency+suppliers
    - 323 5y ago
      Supplier insolvency has nothing to do with money transfer. And if you think that you can "lock bitcoin" into an account to avoid this, you obviously don't know much about how these things work. Hint: you can also "lock dollars" today, it's called "escrow". But it wasn't used in WireCard (I take your word for it, I don't know the case). Explained like I'm five: BMW will not accept it's bitcoin being locked for 90 days, so that it's supplier can be sure it will receive it's pay. Because if BMW would have accepted such a thing, it would pay today, not 90 days later. So crypto doesn't solve any problem here, because BMW doesn't want this problem solved. And today, the supplier would use "factoring" so that it can receive the money instantly, instead of 90 days later, and the bank which provides the factoring service will make sure to take it's money from BMW later. Hint: you need capital to be able to provide factoring, since it involves credit risk, so crypto can't replace that either directly (it could with some fancy smart contracts that pool liquidity and yield)

pyrale 5y ago

So basically, does that mean KYC/AML are officially dead in BTC's environment? The picture was not bright before, but with this kind of innovations, it seems impossible for this network to build banking systems that respect regulations.

luciusdomitius 5y ago
Have those regulations ever made any sense? If someone is involved in illegal activity, then prosecute him for that. Banks' purpose is to manage wealth, not to be policemen.
baby 5y ago
BTC is not built to support KYC/AML.
- bigdubs 5y ago
  Then it's going to be weaponized to launder money and be made illegal eventually.
  - webinvest 5y ago
    BTC is less anonymous than cash.
  - baby 5y ago
    That's an argument that has been made yes.
  - vb6sp6 5y ago
    > Then it's going to be weaponized to launder money We should stick with USD. No one does anything illegal with USD
    - mikevm 5y ago
      Yes, which is why all ransomwares ask money in USD, right?

deleted 5y ago

[deleted]

lalaland1125 5y ago

How is this different from the lightning network?

pshc 5y ago
It sounds quite similar except it hasn’t solved the problem that Lightning has—participants can broadcast old states to rewind history. Probably should just use Lightning instead?

cgb223 5y ago

So if I’m a single supplier and I want to act as a hostile actor in order to negotiate better terms or something, does my refusing to sign mean that _all_ supplier transactions are reversed or at least slowed on chain? Is there an actual attack surface here? Also, if I’m adding a new supplier in this example, do I have to spin up an entirely new “virtual bank” to do so? Or can I just add them to the current one? What is the user experience there?

polyomino 5y ago
This is a new fundamental building block that would help make these types of scenarios possible. However, by the time end users get an implementation, it will likely be more complicated than a single transaction for the reasons you mention and others. Also note, as exemplified by altcoins it is always possible to trade off decentralization or security for more features.
danlugo92 5y ago
You will open a virtual bank with one of the big nodes, say Binance, and they will handle the rest.

m3kw9 5y ago

He’s talking about lightning network with multisig support, which I thought they always had, only that with taproot a multi signiture can be combined as one, which would look like a single person signed it

mrfusion 5y ago

Would that be useful for privacy too?