Depots: Theft-Proof, Self-Custodial Bitcoin For Billions Of Users

The protocol introduces "depots," which are mechanisms that enable many thousands or millions of users to hold Bitcoin in off-chain Lightning channels securely, without the reliance on custodial solutions like exchanges. Depots leverage griefer penalization for security, ensuring neither users nor operators can steal funds without incurring a proportional loss.

A single depot achieves this by utilizing a Funding transaction with a Taproot output placed on-chain. This output forms the basis for creating probabilistic off-chain Lightning channels for users. These channels have a probabilistic hit chance based on a predefined prime number, enabling them to be put on-chain only if they 'hit,' thereby minimizing blockchain space usage. The depot itself has an expiry date before which all users must drain their funds, transferring them either via Lightning payments or to another depot. If funds remain post-expiry, and their channel is a hit, users can claim these funds; otherwise, they are lost or burnt if multiple hits occur.

Depots incorporate several innovative concepts: a time-limited output funded on-chain by an operator, randomization to replace deterministic outputs, and griefer penalization. These facilitate large-scale user participation without on-chain congestion, as channels typically do not need to go on-chain unless necessary for security or fund recovery at expiry. The system's design also inherently incentivizes both users and operators to act cooperatively and penalizes malicious activities by allowing griefing attacks only at a significant personal cost.

Furthermore, depots require specific enhancements to the Bitcoin protocol to function optimally, such as CheckTemplateVerify (CTV), CheckSigFromStack (CSFS), and potentially other operations like PairCommit (PC), multiply (OP_MUL), and modulus (OP_MOD) operations. These technical requirements ensure that depots operate efficiently and securely, supporting a theoretical user base in the billions with the potential for high transaction throughput via off-chain channels.

In essence, the presented depot protocol offers a scalable, secure framework for Bitcoin transactions that significantly reduces the necessity for on-chain transaction space, thus potentially allowing for broader adoption and use of Bitcoin in everyday transactions without relying on trust-based, centralized custodians.