Transformable Discreet Log Contracts

Abstract

Since Bitcoin and the Unspent Transaction Output (UTXO)model wereintroduced by Satoshi Nakamoto over a decade ago, there have been many important issues identified with the UTXO model; the most important being that it is hard to extend the model to accommodate more complex use cases, such as those related to decentralized finance. Currently, Ethereum has many decentralized exchanges which allow users to seamlessly make trades. Performing a trade on chain on Bitcoin is quite difficult; currently, the most elegant way is to set up a Discreet Log Contract (DLC) between you and your counter-party. However, this currently have many downsides; for example they are not transferable (i.e. once Alice and Bob sign up for the DLC, they are stuck in the DLC until settlement or they both interactively agree to leave). We fix this by introducing the Transformable Discreet Log Contract (TDLC), which allows a third party, Carol, to swap in for either Alice or Bob midway through the contract with reduced interaction and the Truly Transformable Discreet Log Contract (TTDLC), which allows multiple parties to seamlessly trade the contract around between them. With both the TDLC and the TTDLC, the party swapping into the contract only has to interact with the single party swapping out. The end goal for the work presented in this thesis is to help improve the usability of Bitcoin for advanced use cases such as those relevant to decentralized finance.