bitcoin-dev
Combined summary - Out-of-band transaction fees
In a discussion about improving the privacy of Bitcoin, participants consider alternative methods to enhance blockchain layer privacy.
They explore the idea of paying someone to add their unspent transaction output (UTXO) to a transaction for fees, rather than relying on distinguishing honest service providers. The goal is to improve privacy regardless of standardized UTXO sizes. While protocols like JoinMarket and SwapMarket have been successful in this area, they have some overheads and require more UTXOs and larger transactions than necessary.Unequal output size CoinJoins are not well understood in terms of privacy properties, whereas evenly sized output CoinJoins offer efficiency. Speculatively, if Bitcoin becomes mainstream and transaction prices increase significantly, using Layer 2 (L2) technology and evenly sized UTXOs could be more cost-effective. However, this approach only works when exact values are unimportant and requires fee hacks.Although the initial idea has regulatory risks, there is potential for exploring an arbitrary-amount scheme that provides strong assurances efficiently. The conversation aims to devise a method for individuals to pay fees for transaction confirmation without linking other coins. A CoinJoin-like approach is suggested, using only Layer 1 (L1) and combining fees through a "FeeJoin" mechanism.The proposed mechanism involves a third-party service dividing its service into fixed-feerate bins. Clients can select their preferred feerate bin, ensuring miners and chain analysis cannot link the resulting transaction as they only see the resulting transaction. The ultimate objective is to improve privacy at the Bitcoin blockchain layer, regardless of the method used or whether standardized UTXO sizes are employed. Both JoinMarket and the upcoming SwapMarket do not require specific standardized UTXO sizes, giving clients the flexibility to choose any sizes they prefer.Developer Sebastian Geisler suggests the possibility of out-of-band transactions, allowing fees to be paid externally while preserving privacy. This would benefit tumbling and CoinJoin-type protocols. However, this approach relies on Layer 2 mechanisms like the Lightning Network and requires a reliable fee-bumping mechanism at Layer 1. Geisler highlights that out-of-band transaction fees have seen little interest thus far. One potential use case is sending UTXOs "intact" for settlement applications in Layer 2 systems.Geisler proposes having a standardized system for out-of-band transactions instead of each pool implementing its own API. Each service would announce the means of payment it supports, allowing users and miners to choose when paying or redeeming fees. Miners including a transaction would authenticate their claim with a unique public key. Nevertheless, concerns are raised about the centralizing effects and the potential difficulty of evaluating the trustworthiness of multiple third-party services.In summary, Sebastian Geisler's proposal of out-of-band transaction fees offers privacy-preserving fee payments in Bitcoin transactions. This can be beneficial for sending UTXOs "intact" and introducing further ambiguity in CoinJoin-like protocols. Standardizing such a system and mitigating centralizing effects are crucial. Users should be able to choose from different means of payment, and miners should authenticate their claims with a unique public key. Although not a general solution for fee payments, out-of-band options can assist specific protocols as Bitcoin serves as a settlement and reserve layer.