delvingbitcoin

Liquidity griefing in multi-party transaction protocols

Liquidity griefing in multi-party transaction protocols

Original Postby morehouse

Posted on: December 7, 2023 19:12 UTC

The discussion surrounding v3 transactions highlights certain vulnerabilities, including the potential for double spending to incur a limited Replace-by-Fee (RBF) penalty.

An example of this would be an attacker using witness inflation attacks to force higher fees on the victim's Unspent Transaction Outputs (UTOs). A GitHub discussion provided a scenario where a Lightning Service Provider (LSP) may face additional costs due to such attacks. In this instance, if an LSP used a 80 sat/vB feerate for a funding transaction and allocated 20,000 sats for their 250 vB portion of the transaction fee, and the total transaction size was 500 vB with a fee of 40,000 sats, any witness inflation by the attacker could significantly stall the confirmation of the transaction.

If the attacker were to chain a descendant transaction with a fee of 10,000 sats, the LSP looking to double-spend their griefed UTXOs would face a new fee rate of 100 sat/vB, which is 25% more than the initial rate. Should the attacker persist in these actions, each subsequent double spend would necessitate an even higher fee. Despite this exploitation technique, it's been noted that such pinning attacks are not entirely reliable. The ability of an attacker to lower the feerate of a funding transaction depends on having low-feerate ancestors. Transactions with low feerates can be dropped from network mempools, allowing honest transactions at normal feerates to confirm because they would not be considered double spends in those particular mempools. This perspective is supported by observations made by a user identified as @TheBlueMatt, who has found through experimentation that even transactions with relatively low feerates are still capable of propagation and confirmation under current conditions.