The unsuitability of presigned transactions for vaults

Protocol Design
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During recent discussions about Covenant tools softfork, a few people have raised the ideas that

  1. Vaults can be implemented today using transactions which are presigned with ephemeral keys, and
  2. The apparent absence of these vaults indicates a lack of demand for vaults as a custody approach.

I will argue here that (i) large operations are using vaults (or painfully emulating them), and (ii) the limitations of vaults with existing script capability make them basically unusable for most people.

Quotes

With vaults in particular, if those were a strong justification we’d expect someone to be simulating them on mainnet with a semi-trusted third party oracle service.

Vaults can be done today with pre-signed transactions, even if the trade-offs are different it’s a practical construction.

Vaults can be done today with presigned transactions. The presigned versions are a lot harder to implement correctly than with OP_CTV + OP_VAULT, they can’t receive payments without interaction with the payer, and the vault user needs to store more data. However, it seems to me that if there were high demand for the general ability to have hot spends announced onchain with a cancellation window, a significant number of people would be using presigned vaults—but I’m not aware of that happening.

No one using vaults?

This point is quick and easy to address: there are large custodial operations that are both emulating vaults with automated multisig signing and implementing vaults with presigned transactions, however this isn’t widely publicized. These are institutions that manage a lot of bitcoin. I have firsthand knowledge of one (presigned), and I’ll describe the shortcomings that motivated me to pursue CTV and then ultimately OP_VAULT.

It’s worth noting that there are open efforts to implement (or emulate) vaults using the existing scripting capabilities we have today, namely Revault, Liana, and Bryan Bishop’s prototype code.

Vaults with presigned transactions

As Bryan Bishop first noted a few years ago, and as I described at length in my vaults paper, one form of vaults can be implemented using ephemeral keys, however there are major usability issues with this approach.

  • Use of ephemeral keys: to emulate vaults today (without multisig/autosigning), users must generate temporary private keys that must be destroyed after use to lock funds into a pretermined spend path using “bearer asset” transactions. None but the most sophisticated and well-funded operations can generate ephemeral keys in a way that is convincingly secure, and even then there are questions. Proving non-existence of attack is impossible.
  • Address reuse => burnt coins: because transaction graphs are pregenerated, if coins are accidentally sent to an “already sealed” presigned txn vault, the coins are burnt. This means end users cannot be given vault addresses publicly, and even sophisticated users must be very careful.
  • Difficult UTXO management: vault creation is very onerous since it requires generating ephemeral keys securely, and this setup process must be performed every time the user deposits. This makes coin consolidation difficult.
  • Static/difficult fee management: because transactions are pregenerated, the fee management strategy must be decided up front and locked in. This means that inefficient CPFP must be used with a statically defined fee wallet. If that fee wallet is lost, the vault’s operation is hampered.
  • “Toxic” vault data must be persisted indefinitely: the nature of using presigned transaction means that vaulted funds become “bearer assets” within these transactions, and they must be persisted indefinitely by the user.
  • Inefficient chain use: since no batched withdrawals or recoveries are possible, each deposit must have its own on-chain lifecycle, resulting in much more chain use (and fee spend) than is strictly necessary.

Presigned transaction vaults are functionally hopeless

Needless to say, no one aside from the most sophisticated industrial operation is going to make use of this strategy. To claim that no one implementing a scheme like this is evidence that no one wants or would benefit from vaults is a fraught argument.

What about just using CTV?

Some time ago I implemented a prototype of vaults assuming the availability of CTV. I was hoping to make usable vaults with just one new primitive. I discovered that this approach removes the need for ephemeral key generation and backup of critical data, but all of the problems associated with the nature of pregenerated transactions graphs persist.

This exercise led me to write the vaults paper, which details the ways that these usability issues are solved by OP_VAULT.

Summary

In summary, presigned transactions are not really a suitable substrate for vaults unless you have a large, well-funded engineering team. I fear the clear infeasibility of this particular design has predisposed some contributors to assuming vault operation is more onerous than it needs to be. It should come as no surprise that this is not a widely deployed design, and shouldn’t be used as an indictment against other vault strategies.

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As noted in the quote from me from the other thread, I think @jamesob’s vault design is superior from a user’s perspective than presigned vaults. However, it seems to me that users ought to be able to get most of the key benefits using presigned transactions. As such, I’ll play devil’s advocate here.

This is very useful for me to hear and is the type of information that would help change my mind on the desirability of adding vault-specific (or vault-motivated) opcodes.

What is the fundamental difference between an ephemeral key and an ephemeral nonce (the private form of a signature nonce)? If Alice accidentally leaks the private form of a signature nonce for one of her signed transactions, any funds she received to the corresponding key or a related key using public BIP32 derivation can be stolen (as long as those funds haven’t already been spent in a confirmed transaction).

It feels to me like ephemeral keys and ephemeral nonces are really closely related, so any argument that states ephemeral keys aren’t secure enough is an argument that neither ECDSA nor schnorr is secure enough, especially in the presence of address reuse.

I mention this is a clear advantage of consensus-enabled vaults, but now I’m not so sure. IIRC, in the OP_VAULT design, the most-secure-key can spend at any time without any time constraint, so why can’t all of the paths in a presigned transaction vault have a tapleaf that allows spending by the most-secure-key? That way, if something goes wrong, the most-secure-key can be used to recover and coins never become permanently burnt.

That said, I agree it’s still the case that address reuse breaks the vault workflow, so external users can’t be given vault address publicly, requiring an extra hop for any deposits. However, address reuse is also something that’s not generally guaranteed to work—people lose access to old keys from time to time—so the fact that it always doesn’t work for presigned transaction vaults just means we need to work harder on deploying system-wide solutions, such as wallet-enforced address expiry times.

I maintain my previous argument about secure ephemeral key generation being something we have extensive near-experience with. I don’t see a fundamental difference between the difficulty of securely handling ephemeral nonces each time a user spends to securely handling ephemeral keys each time a user needs to receive. I think this is basically a repeat of your first point.

I’m not sure CPFP needs to be used (can sighash flags be used?), but even if it does, presigned vault transactions may be able to have an efficiency advantage over OP_VAULT transactions by the presigned versions being able to use all keypath spends (with BIP68 sequence bits set), whereas OP_VAULT must use scriptpath spends (unless the most-secure-key is used). I think the vbytes difference probably favors the OP_VAULT version there (unless a deep taproot path is used), but I think it makes the comparison less clear cut.

Additionally, I think ephemeral anchors, if deployed, will eliminate the need to use a statically-defined wallet. Instead, any onchain funds will be able to fee bump the vault transaction without introducing pinning risks.

I think this is largely the same problem faced by tens of thousands of LN nodes at present—they must store revoked states robustly but also securely, as any loss and release of that data can cost them money. This is certainly less than ideal, but it hasn’t stopped widespread use of LN.

I’m agreed here, but I think this actually works towards my overall point: if vaults were a highly desired feature, people would be willing to pay more for them and then we could figure out how to optimize them for everyone’s benefit. But if very few people are willing to pay even a marginal increase in fees for vaults, I think that’s an argument that optimizing them is premature.

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I wanted to add this point from @ajtowns in the other thread, which is an argument I do find compelling about the advantage of OP_VAULT over presigned transaction vaults.

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I’d like to comment on a few things:

  • Liana is not an emulation of a vault;
  • I think you don’t address the right point with regard to covenant emulation;
  • I believe Revault actually needs some sort of covenant to be practical.

Liana is neither aiming to emulate a vault nor using a vault-like construction. I think of vaults as protecting against theft, and of Liana as protecting against loss. Technically it’s simply a wallet where you’ve got an additional, timelocked, spending path (similarly to Green).

That said it could make good use of a covenant in the spirit of TLUV to avoid requiring users rotate their coins to prevent timelock expiration! I think OP_VAULT could be enough actually.

In your post you are mixing up the Revault and ephemeral-key approaches with emulating a covenant using a trusted oracle. You address the former but not the latter. Also Revault isn’t aiming to emulate a covenant. It’s a vault design in itself, a covenant could improve it but not replace it entirely.

On the other hand the idea you mention (also present in one of your quotes) is about how you can always in a Script require the signature from a cosigning server enforcing the rules of the covenant. This way any form of covenant can be emulated with a trusted oracle.

There is probably good reasons why this hasn’t been done (especially for vaults, where the SPOF is particularly problematic). But it’s also a fair point to raise: we don’t know of anybody allegedly interested in using vaults who reached the point in development where they have an MVP which emulates the covenant they need using a simple cosigning server.

I agree with you “vaults” with a pre-committed transaction chain aren’t very interesting. I would argue the closest design to an actual vault which doesn’t need a covenant is Revault. But i actually believe it does need one, in practice. (This is one of the reasons we’ve paused development there, along with a lack of serious interest.)

In Revault, one must never give away a signature for an Unvault transaction if (all) their watchtowers haven’t received all the signatures for the Cancel transaction. Not only should they never sign the Unvault before the Cancel but also they must somehow verify all their watchtowers received all Cancel transaction signatures. I don’t think this verification can be done reasonably securely for the kind of amounts you’d have on a vault.

A covenant (as simple as CTV for instance) would solve this by making the process “atomic”. Since the Cancel transaction is (one way or another) committed to in the Unvault output, it always exists whenever an Unvault transaction is signed. And this would presumably be enforced by the signing device itself.

I guess this is one more point in favour of “it doesn’t follow from the lack of usage of Revault that people don’t want vaults at all”. I’m not convinced they do though, just figured it was worth sharing.

Besides, small point on @harding’s post:

Probably not. Without APO one malleated txid and all the funds are gone.

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I think these might only be analogous in a strictly theoretical sense, at least today. If I understand correctly, nonces are confined to the signing device e.g. a hardware wallet. On the other hand, constructing a presigned tree of vault transactions must almost certainly be done on a general purpose computer because of lack of hardware wallet support for fully general PSBTs. Not to mention the fact that no wallet I’m aware of makes it easy to quickly generate a throwaway keypair. From a practical standpoint I don’t think this analogy holds until HWW manufacturers support some kind of more general signature mechanism.

And even then, I think it would be fairly time-consumptive to refresh and sign with ephemeral keys each time you want to deposit, even assuming HWW support, vs. having an xpub on your computer that can just generate fresh addresses.

That’s a good point - I’m pretty sure that’s possible, even though it hasn’t been implemented in any existing OSS presigned vault scheme to my knowledge.

This is the point I disagree on most, I think. I believe you’re overlooking the significant overhead that comes with presigned vaults requiring separate transactional flows for each vaulted deposit.

Consider this figure from BIP-345:

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Not only do presigned schemes have an extra UTXO/transaction created for each separate vault coin during withdrawal (the “unvault” → “warm wallet” step that exists in presigned but not OP_VAULT), but there are n-1 extra unvault (or “trigger”) outputs created when initiating the unvault (where n is the number of deposits being unvaulted).

This makes e.g., dollar-cost averaging into a presigned txn vault unreasonably burdensome, since you’d be talking about potentially hundreds of extra UTXOs and transactions created.

I can run a simulation of specific sizes if you’d like, but I hope the diagram at least gives some indication of the scale of the difference.

It is possible that for an input vault coin or two, the space consumed may be comparable. But consider that presigned vaults have non-trivial scripts as well, so the witness sizes may not be all that different.

Currently, V3 transactions (including ephemeral anchors) don’t support packages that would be compatible with using a single anchor to bump multiple “parent” vault transactions. EAs are only planned, at least as of now, to support single-child-single-parent topologies. Based on how expectations of V3 functionality have been scaled back, it is unclear whether there will ever be a policy that supports bumping multiple parent transactions with EAs, which exacerbates the separate-txn limitation I described above.

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Liana may not explicitly be a vault, but if OP_VAULT were available, Liana would almost certainly be a user of it. There would be no need to dig up keys and roll timelocks with OP_VAULT; the opcode is general enough to cover the Liana case. See this twitter thread for details. Reproduced here in case Twitter goes away:

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I’m not sure where you think I did that mixup, but I’m aware of the difference in approaches. The reason I didn’t dwell much on using an oracle to enforce covenants is because if you’re relying to rely on an oracle to enforce transaction validity, you basically don’t need any script upgrades ever. Of course I think this is not a great security model in general, and especially for people without the resources to run live HSMs.

Maybe no one’s done it because it’s basically a bad trade-off? But again I’m confused, because isn’t this what you guys tried with Revault – presumably because the conceptual notion of vaults is very appealing?