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BSIP: 0044
Title: Hashed Time-Locked Contract
Authors: Ryan R. Fox, John M. Jones, taconator
Status: Draft
Type: Protocol
Created: 2018-08-22
Discussion: https://github.com/bitshares/bsips/pull/104

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 on the BitShares blockchain is a desirable feature that could be used by many persons, services, and businesses to mitigate risks between participants during asset transfer. 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 conditions, evaluations and transfers through the BitShares consensus protocol.

Rational

Elements of a Hashed Time-Locked Contract (HTLC)

An HTLC is defined to have the following components:

  • Parties to the HTLC

    • The depositor

    • The recipient

  • Secured Asset

    • Symbol

    • Quantity

  • Conditions

    • Hash lock

      • Preimage (the secret)

      • Preimage hash (hash of the preimage)

      • Preimage length

    • Time lock

      • Timeout threshold (expiry)
  • Condition Evaluators

  • Fees

    • Prepare operation fee

    • Prepare duration fee

    • Redeem operation fee

Parties

Two parties must be defined within each HTLC: the depositor and the recipient. The depositor will secure their assets within the HTLC and designate the recipient to receive them. Note that a proposal transaction may be used for tasks such as multi-signature, but the end result at approval remains a single depositor and a single recipient.

Secured Asset

An HTLC involves a conditional transfer of the defined asset symbol in the amount of assets quantity from the depositor to the recipient. The HTLC holds these designated secured 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 comprise both the preimage hash and preimage length, barring the transfer of held secured 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 secured 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 secured assets. The HTLC will only evaluate transfer request from depositor and after timeout threshold, then return secured assets to depositor.

Note: we recommend the Committee the set maximum allowable preimage length to ensure unreasonably large submissions are rejected.

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 specified 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 length of the preimage matches the specified preimage length.

  3. That the hash of the preimage calculates to the specified preimage hash.

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

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 secured 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.

Note: we recommend the Committee set the maximum value for timeout threshold to limit the amount of time a contract may consume memory of validation nodes.

Early Termination of an HTLC

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, up to the maximum defined by the Committee. User protection from locking up funds for an extremely long period could be provided by the UI used to create the HTLC.

Automatic Transfers Upon Expiry

Upon expiry of the timeout threshold, the secured assets held within the HTLC will be queued for return to depositor. From this time, the HTLC will no longer evaluate the hash lock, preventing recipient from receiving the secured assets. No action is required by the depositor to receive their "locked" funds back from the contract after expiry.

Fees

We propose three (3) operations (see Specification) to implement the HTLC feature, each requiring distinct fees. All fees will be set and maintained by the Committee.

The "prepare" operation will store in-memory data on validation nodes until redeemed or expiry. We recommend the htlc_preparation_fee be comprised of two (2) components: GRAPHENE_HTLC_PREPARE_FEE which is flat and GRAPHENE_HTLC_DAILY_FEE which is variable based on the number of days until timeout threshold.

The "redeem" operation frees most of the memory from the validation nodes and adds the preimage data into blockchain storage when the transaction is validated. We recommend the htlc_redemption_fee be comprised of two (2) components: GRAPHEN_HTLC_REDEEM_FEE which is may be quite low and GRAPHENE_HTLC_KB_FEE which is variable based on the total number of kilobytes of data committed to the blockchain.

The "extend expiry" operation will update the timeout_threshold to a future date, extending in-memory resources on validation nodes. We recommend the htlc_extend_expiry_fee be comprised of two (2) components: GRAPHENE_HTLC_EXTEND_EXPIRY_FEE which is flat and GRAPHENE_HTLC_DAILY_FEE which is variable based on the number of additional days added to extend the timeout_threshold of the contract.

Existing Escrow Proposals

This 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.

BitShares Escrow

A separate BSIP [cite] 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.

Scorum Atomic Swap

[cite]

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 [cite].

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) to execute. However, the proposal does not "lock" any assets, so the transfer will fail if the sending account lacks sufficient funds during validation. If the required authorizations are not given by proposal expiry, then no transfer will occur. This feature also contains many limitations when compared to HTLC.

Possible Concepts to Implement

The following will describe possible concepts that could be implemented within the BitShares protocol.

Set-Price Swap

Two parties may agree on a swap of two distinct secured assets at a set price (defined exchange ratio), without using an exchange such as the BitShares DEX. This will require two (2) HTLC contracts containing the identical preimage hash within each to "link" them together and facilitate the execution of an "atomic swap" of these "locked" secured assets between the party's accounts resulting in a trustless value exchange.

Business Approach

Alice begins by generating a distinct preimage of her choosing, notes the preimage length and calculates the preimage hash. She retains the preimage in secret, then creates a new HTLC stipulating that the depositor account "alice" will transfer quantity "100" "bitUSD" asset into the recipient account "bob" if a preimage is presented matching the preimage hash before the timelock threshold of 10AM tomorrow. Upon consensus validation of the HTLC, the 100 bitUSD secured assets are transferred from Alice's depositor account into the HTLC where they remain locked by the preimage hash and timelock threshold. She then shares the resulting contract identifier with Bob.

Bob queries the blockchain for the contract identifier Alice provided. He examines to ensure it contains his desired recipient account, asset symbol, asset quantity, preimage length, and timelock threshold. Bob now creates his own HTLC that will deposit quantity "10,000" "BTS" symbol into the recipient account "alice" from depositor account "bob", if a preimage that generates the preimage hash Bob copied from Alice's HTLC before the timelock threshold of 5pm today. Upon consensus validation of Bob's HTLC, his 10,000 BTS secured assets are transferred from his depositor account and "locked" into the contract. He then shares the resulting contract identifier with Alice. Notice Bob specified a timelock threshold much shorter than Alice defined in her contract. This ensures Bob will have enough time to observe and use the preimage Alice will publish to the blockchain next.

Alice now examines the HTLC Bob created, ensuring the preimage hash and preimage length both match the original values she used within her contract. She also verifies her desired recipient account "alice", the quantity, symbol, and the timelock threshold agree with her intentions. She now uses her preimage to "unlock" Bob's contract. Once consensus validation occurs, the HTLC will transfer the secured assets 10,000 BTS into her recipient account "alice". This reveals the preimage on the BitShares blockchain for Bob to use next. NOTE: She must do this before 5PM. Otherwise, Bob may (and should) reclaim the funds in the contract he created.

Bob can now observe the preimage Alice used to "unlock" his HTLC, and he will use it to "unlock" her HTLC to receive the 100 bitUSD secured assets into his recipient account "bob". NOTE: He must do this before 10AM tomorrow. Otherwise, Alice may (and should) reclaim the funds in the contract she created.

Cross-Chain Swap

Similar to the set-price swap mentioned above, two parties may exchange tokens between distinct blockchains when both implement HTLC support. Bitcoin, Litecoin and many others support HTLC [cite].

Business Approach

Alice and Bob intend to swap BTC (bitcoin token) and BTS (BitShares token). This will require both parties to define both a BTC deposit address and BTS deposit account. These addresses/accounts will be exchanged between the parties.

Alice will initiate the first leg of the swap on the BitShares Network with her HTLC and Bob will follow up on the Bitcoin Network with his HTLC. Allice generates a distinct preimage of her choosing, notes the preimage length and calculates the preimage hash. She retains the preimage in secret, then creates a new HTLC stipulating that the depositor account "alice" will transfer quantity "10,000" "bitUSD" asset into the recipient account "bob" if a preimage is presented matching the preimage hash before the timelock threshold of 10AM tomorrow. Upon consensus validation of the HTLC on the BitShares Network, the 10,000 bitUSD secured assets are transferred from Alice's depositor account into the HTLC where they remain locked by the preimage hash and timelock threshold. She then shares the resulting contract identifier with Bob.

Bob queries the BitShares Network for the contract identifier Alice provided. He examines to ensure it contains his desired recipient account, asset symbol, asset quantity, preimage length, and timelock threshold. Bob now creates and funds his own HTLC on the Bitcoin Network that will spend the UTXO of this contract to the recipient address Alice provided during their setup phase, of amount 1 BTC if a preimage that generates the preimage hash Bob copied from Alice's HTLC before the timelock threshold of 5pm today. Upon consensus validation of Bob's HTLC on the Bitcoin Network, 1 BTC he controlled are spent into the contract and "locked". He then shares the resulting contract identifier with Alice. Notice Bob specified a timelock threshold much shorter than Alice defined in her contract. This ensures Bob will have enough time to observe and use the preimage Alice will publish to the blockchain next.

Alice now examines the HTLC Bob created on the Bitcoin Network, ensuring the preimage hash and preimage length both match the original values she used within her contract. She also verifies her desired recipient address, quantity, and timelock threshold agree with her intentions. She now uses her preimage to "unlock" Bob's contract. Once consensus validation occurs on the Bitcoin Network, the HTLC will spend 1 BTC to Alice's recipient address. This reveals the preimage on the Bitcoin Network for Bob to use next. NOTE: She must do this before 5PM. Otherwise, Bob may (and should) reclaim the funds in the contract he created.

Bob has now observed the preimage Alice used to "unlock" his HTLC, and he will use it to "unlock" her HTLC to receive the 10,000 bitUSD secured assets into his recipient account "bob". NOTE: He must do this before 10AM tomorrow. Otherwise, Alice may (and should) reclaim the funds in the contract she created.

Specifications

Objects

      class htlc_object : public graphene::db::abstract_object<htlc_object> {
         public:
            static const uint8_t space_id = implementation_ids;
            static const uint8_t type_id  = impl_htlc_object_type;

            account_id_type depositor;
            account_id_type  recipient;
            asset amount;
            fc::time_point_sec expiration;
            asset pending_fee;
            vector<unsigned char> preimage_hash;
            uint16_t preimage_size;
            transaction_id_type preimage_tx_id;
      };

Operations

Prepare

transaction_obj htlc_prepare(depositor, quantity, symbol, recipient, hash_algorithm, preimage_hash, preimage_length, timeout_threshold, htlc_preparation_fee)
  Validate: HTLC signed by requisite `authority` for `depositor` account 
  Validate: `depositor` account has requisite `quantity` of `symbol` asset for the `guarantee`
  Validate: `timeout_threshold` < now() + GRAPHENE_HTLC_MAXIMUM_DURRATION
  Calculate: `required_fee` = GRAPHENE_HTLC_OPERATION_FEE + GRAPHENE_HTLC_DAILY_FEE * count((`timeout_threshold` - now()), days)
  Validate: `depositor` account has requisite `quantity` of BTS for `required_fee`
  Validate: `recipient` account exists
  Validate: `preimage_length` does not exceed GRAPHENE_HTLC_MAXIMUM_PREIMAGE_LENGTH
  Validate: `preimage_hash` well formed
  Update: BTS balance of `depositor` based on `required_fee`)
  contract = new htlc_obj
  Set: `contract.depositor` = `depositor`
  Set: `contract.recipient` = `recipient`
  Set: `contract.hash_algorithm` = `hash_algorithm`
  Set: `contract.preimage_hash` = `preimage_hash`
  Set: `contract.preimage_length` = `preimage_length`
  Set: `contract.timeout_treshold` = `timeout_threshold`
  Transfer: from `depositor` account to `contract.quantity` of `contract.symbol`
  return results

Redeem

transaction_obj htlc_redeem(fee_paying_account, id, preimage, htlc_redemption_fee)
  Validate: transaction signed by requisite `authority` for `fee_paying_account` // any account may attempt to redeem
  Get: get_htlc(id)
  Validate: `fee_paying_account` account has requisite `quantity` of BTS for `htlc_redeem_fee` and `htlc_kb_fee`
  Update: balance of `fee_paying_account` based on total fees
  // Evaluate: timelock
     if now() < `timeout_threshold` then return error // "timeout exceeded"
  // Evaluate: hashlock
     if length(preimage) != `id.preimage_length` then return error // "preimage length mismatch"
     Calculate: `preimage_hash` = hash(preimage)
     if `preimage_hash` != `id.preimage_hash` then return error // "invalid preimage submitted"
     Update: balance of `id.recipient` add asset `id.symbol` of quantity `id.quantity`
     Add: transaction to mempool 
     Set: `id.preimage_tx_id` = `transaction_id` 
     Cleanup: memory allocated to this htlc
     Virtual Operation: Update account history for `depositor` to reflect redemption as by default the above operation will only appear for `redeemer`

     return: results

Extend Expiry

transaction_obj htlc_extend_expiry(depositor, id, timeout_threshold, htlc_extention_fee)
  Validate: 'depositor' = get_htlc(id).depositor 
  Validate: `timeout_threshold` < now() + GRAPHENE_HTLC_MAXIMUM_DURRATION
  Calculate: `required_fee` = GRAPHENE_HTLC_DAILY_FEE * count((`timeout_threshold` - now()), days)
  Validate: `depositor` account has requisite `quantity` of BTS for `required_fee`
  Update: BTS balance of `depositor` based on `required_fee`)
  Set: `contract.timeout_treshold` = `timeout_threshold`
  return results

At Expiry (evaluated at each block commit)

  Get: get_htlc(id)
  Update: balance of `depositor` add asset `id.symbol` of quantity `id.quantity`
  Cleanup: memory allocated to this htlc
  Virtual Operation: Update account history for `depositor` to reflect expiry without redemption.

cli_wallet APIs

htlc_prepare

htlc_redeem

htlc_extend_expiry

witness_node APIs

get_htlc

get_htlcs_for_account

Discussion

https://github.com/bitshares/bsips/pull/104

Summary for Tokenholders

Hashed Timelock Contracts (HTLCs) enable conditional transfers, whereby distinct account holders may transfer tokens from one account (sender) to a second account (receiver) before a defined expiry (timelock), only if the preimage (a.k.a. password) is revealed (hashlock) on the blockchain. If the hashlock condition is not satisfied prior to the timelock the tokens are return to the sender.

A typical scenario involves “Alice” and “Bob” each having accounts on the BitShares Network and addresses on the Bitcoin Network willing to trade their tokens. Alice will begin by creating an HTLC on BitShares to transfer BTS tokens from account alice to account bob with conditions set for hash of preimage (hashlock) and contract expiry (timelock). Bob will review her HTLC, if acceptable he will create an HTLC on the Bitcoin Network to transfer BTC from his address to her address with conditions set to the same hashlock value and a timelock value approximately half that specified by Alice. Next, Alice will review Bob’s HTLC for correctness and if acceptable, will redeem the BTC therein by publishing her preimage to satisfy the hashlock prior to the timelock expiry. Finally, Bob will observe the revealed preimage and use it to redeem Alice’s HTLC on the BitShares Network resulting in the BTS transferring to his account. Alice and Bob successfully exchanged native BTS and BTC at their agreed to ratio without any intermediaries.

Copyright

This document is placed in the public domain.

See Also

A description of Hashed Timelock Contracts