V3 transaction policy for anti-pinning

V3 transaction policy for anti-pinning

Original Postby harding

Posted on: January 5, 2024 21:59 UTC

Understanding Hash Time-Locked Contracts (HTLCs) is fundamental to grasping the mechanics of certain cryptocurrency transactions, particularly those related to the Lightning Network.

HTLCs are time-bound conditional transactions that facilitate the trustless exchange of cryptocurrencies between parties. Specifically, HTLC-Success and HTLC-Timeout transactions are two types of operations that come into play when dealing with such contracts.

These transactions are designed as presigned spends of HTLCs using a SIGHASH_SINGLE|SIGHASH_ANYPREVOUT signature type, which allows for flexibility in combining multiple transactions into a single one. The design choice behind this mechanism is primarily to save block space and reduce fees since these transactions by themselves do not contribute any meaningful fee to the miner. In most cases, it's expected that an additional input would be included to cover transaction fees, often accompanied by a corresponding change output.

An area of contention arises with the possibility of circumventing the traditional fee market by negotiating fees directly with miners. Instead of including additional inputs and outputs to handle fees within the transaction, users could potentially pay miners out-of-band to prioritize their transactions. This practice could save on block space but also raises concerns about its impact on network decentralization. The possibility of engaging with miners directly to ensure transaction inclusion without the typical fee structure challenges the fairness and openness of the network, as discussed in conversations with prominent figures in the cryptocurrency space, such as the discussion reflected in a recent Twitter exchange found here.

In summation, HTLCs are pivotal components in advanced cryptocurrency transactions. While they offer efficiency and scalability, there is an ongoing debate regarding the implications of alternative fee arrangements on the broader ecosystem, emphasizing the delicate balance between innovation and the maintenance of a decentralized and fair network infrastructure.