Trustless Address Server – Outsourcing handing out addresses to prevent reuse

Trustless_Address_Server.md

Trustless Address Server

Outsourcing handing out addresses to prevent address reuse

Also discussed on bitcoin-dev.

Introduction

Address reuse prevention generally requires interacting with the recipient in order to receive a fresh address for each payment. There are various protocols that ensure no interaction is required such as BIP47¹ and Silent Payments², though neither is without downsides.

One area that is seemingly underexplored is that of outsourced interaction. BTCPay Server³ is an example of this. The sender interacts with a server, which acts on behalf of the recipient and hands out an address from an xpub. The recipient controls and therefore trusts the server, so malicious addresses won't be given out.

Outsourcing and Malicious Keys

The vast majority of light clients today (even ones that support BIP47, curiously) already control the user's xpub, so it seems logical to think the interaction can be outsourced to them. However, unlike when running your own server, a third party server could potentially hand out malicious addresses (i.e. addresses that belong to someone other than you).

The solution to this is identity. As long as the sender knows a public key by which the recipient can be identified, the recipient can sign the addresses that are derived from their xpub⁴. This way the sender can be sure that the address it receives from the server belongs to the recipient.

Gap Limit

One big remaining problem is the gap limit⁵. When an adversary repeatedly requests addresses from the server but then never uses them, this could result in a large gap of unused addresses. This is a problem because when recovering from backup the wallet stops looking for payments when a large enough gap is encountered. Unfortunately there is no perfect solution, but mitigations are still possible.

Whenever a sender wants to make their first payment, they could be expected to obtain an address at a cost (solving captchas, paying over LN, proof-of-burn⁶). If the sender doesn't mind (or maybe even desires) having their payments correlated by the recipient, a fresh xpub⁷ can be handed out instead of an address in order to enable repeated payments. If non-correlated payments are preferable, after each successful payment the server could hand out a blind ecash⁸ token that entitles the sender to another address.

An alternative mitigation (more user friendly, but more implementation complexity) would be to require the sender to reveal their intended transaction to the server prior to receiving the address⁹. This is not a privacy degradation, since the server could already learn this information regardless. If the transaction doesn't end up getting sent, any subsequent attempt to reuse one of the inputs should either be (temporarily) blacklisted or responded to with the same address that was given out earlier¹⁰.

If despite best efforts the gap limit is inadvertently reached anyway, the recipient may have to be instructed to ensure they properly receive a payment to bridge the gap before new addresses can be handed out. The alternative is to forego privacy when this happens, but this seems unwise.

Use Case

This protocol seems useful for users that a.) want to use light clients, b.) accept the privacy degradation of handing out their xpub to a third party, and c.) want to receive payments non-interactively. If any one of these is not true, other protocols are likely to be a better choice¹¹. Finally, it should be acknowledged that this protocol introduces more friction on the sender side due to the need for a gap limit mitigation strategy.

-- Ruben Somsen

Footnotes

1. BIP47: https://github.com/bitcoin/bips/blob/master/bip-0047.mediawiki ↩

2. Silent Payments: https://gist.github.com/RubenSomsen/c43b79517e7cb701ebf77eec6dbb46b8 ↩

3. BTCPay Server https://btcpayserver.org/ ↩

4. Specifically, this could be a single signature on a merkle root, so the amount of data that the recipient needs to send to the server can be minimized and the server can just generate the same tree from the xpub and hand out merkle proofs to senders. The order of the leaves should be randomized so senders cannot learn how many payments were made. ↩

5. Gap limit: https://bitcoin.stackexchange.com/questions/111534/bitcoin-address-gap-limit ↩

6. Efficient Proof-of-Burn: https://lists.linuxfoundation.org/pipermail/bitcoin-dev/2022-July/020746.html ↩

7. Xpub sharing: https://gist.github.com/RubenSomsen/c43b79517e7cb701ebf77eec6dbb46b8#xpub-sharing ↩

8. Blind ecash: https://gist.github.com/RubenSomsen/be7a4760dd4596d06963d67baf140406 ↩

9. This would essentially look like an incomplete but signed transaction where the output address is still missing. ↩

10. Keep in mind the edge case where e.g. two inputs are presented but not used, followed by two separate transactions which each use one of the priorly presented inputs. ↩

11. Protocol considerations: https://twitter.com/SomsenRuben/status/1530096037414707200 ↩

certainly I can verify to a reasonable degree of certainty whether software I compile and run myself is doing something, or not doing it[. M]any users delegate, placing trust in their node package to do this work for them

Of course we both agree that if you run your own Electrum server (even via a node package) you have a reasonable assurance of being fine, but the specific model I'm addressing here is one where you're remotely connecting to someone else's Electrum server. At that point all assurances go out the window.

no published implementation has the capability to store request data

I don't think there's much of an incentive for chain analysis companies to publish the source code of their modified data retaining variant of Electrum server, while there is an incentive for them to run as many of them as possible to gather data.

I hope that clarifies my threat model a little bit.