Dr Maxim Orlovsky, BICA Labs & Pandora Project

NB: This protocol draft is the work in progress. Feel free to propose PR's and discuss using GitHub issues

Typhon is Bitcoin second-layer technology – the same kind as the Lightning network. You can think of it as of massively-scalable multiparty payment channels. The protocol defines the process of sidechain formation and operations on top of the main Bitcoin blockchain. It is censorship-resistant, permissionless and agnostic to the particular consensus and blockchain formation protocol used by sidechain implementations.

The name "Typhon" comes from Greek mythology, it's a kind of multi-coiled snake or dragon that is able to bring storms: "multiple coils" serve as an analogy to multiple sidechains, while "storms" are the analogy for supreme qualities of this 2nd layer technology as compared to simple payment channels.

Lightning⚡️ brings thunderbolt🌩 – Typhon🐉 brings typhoon🌪

TL;DR: Lightning has limitations; existing sidechain 2-way peg technologies require soft or hardforks, and currently can operate only in trusted mode under federated multisig contracts. There is need to design more scalable 2-nd layer technologies without these limitations.

The idea for the protocol originated from the thoughts on lack of deterministic finality in PoW consensus. This makes it really hard to design trustless sidechains without decreasing the security of the main chain with by introducing new op-codes leading to soft- or hard-forks. At the same time the absence of a finality property in PoW consensus is an important trade-off decision allowing to run the main chain in censorship-resistant manner, so it is undesirable to tweak the consensus towards stronger finality at the expense of pseudonymous participation.

So why do we need sidechains at all if we have the Lightning network? A lot of reasons; one of them is that there is a class of potential bitcoin applications requiring global state (which Lightning technology obviously does not have) – like proof of computing work protocol for scaling high-load computing in censorship-resistant manner, previously designed by my team. Such solutions can’t be put onto the main PoW chain because of its scalability problems and bitcoin script limitations. But what if, instead of 2-way peg sidechains (which at the current bitcoin protocol version can only be federated, i.e. not censorship-resistant), we use the same technology to take bitcoins off the main chain like in the Lightning network, but instead of bringing them into the "payment channel" we will leave them locked ("locked stake") with some CLTV/HTLC-kind of a contract? You can think of it as a "Lightning sidechain" – or, simply, typhoon (something much larger than just a lightning). Yes, the Lightning network itself does not need a "chain" (since it does not need a global state), but many other apps on top of bitcoin will need such thing.

Such sidechains can run any non-PoW consensus which:

• would not produce inflation, operating only on commissions;
• will take "block producers" from that HTLC-like commitment transactions on the main bitcoin PoW chain.

This will guarantee censorship resistance even if the sidechain protocol is not censorship-resistant by its design (you can think of it as a kind of "PoW externality for censorship-resistance"). Sidechains can be used to build lightning channels on top of it – i.e. be a kind of generic sidechain protocol without drawbacks of existing 2-way peg type sidechains. As for bitcoin itself, sidechains will render bitcoin as a platform for many kinds of applications and use cases it can’t be used today, increasing its adoption outside of SoV/MoE + micropayments paradigms in such domains as high load computing, data synchronisation etc – everything that requires global state that can't fit into the 1st layer or be held in existing 2-nd layer stack in a trustless manner.

Typhon is a non-2-way peg trustless sidechain solution that can be implemented using existing Bitcoin Script functionality, i.e. without any soft- or hardforks.

• Censorship resistance: the protocol is permissionless and allow at least the same level of censorship resistance as the main Bitcoin PoW chain.
• Native to Bitcoin: the protocol allows fast Bitcoin transfers to and from sidechain.
• Nothing more then Bitcoin: the protocol does not require any new/special tokens or coins for its operations. Economic incentives can be commission/fee-based and are not part of this specification.
• Consensus agnosticism: the protocol does not depend on a particular consensus and blockchain-formation protocols used in the sidechains.
• High Byzantine tolerance: the protocol tolerates up to 50%-1 Byzantine faults.
• Off-chain: most of the protocol communications are performed outside of Bitcoin blockchain.

The protocol operates under the following assumptions:

• Elliptic curve discrete logarithm problem (ECDLP) is an NP-problem having no feasible deterministic solution.
• The sidechains are operated by a rational majority (see #3) honst majority (i.e. the most of the block-producing nodes are non-Byzantine).
• The sidechains run any kind of 50%+1 Byzantine fault-tolerant consensus and blockchain formation protocol.
• A sidechain consensus must have a concept of epochs, within which the state of the sidechain reaches finality.
• Each epoch must have a predictable duration known before the start of the epoch, i.e. there should be an ability to deterministically compute the time of the next final state for the sidechain before the epoch begins.

Anyone can commit to participating a Typhon-based sidechain by creating and adding a special sidechain commit transaction (or simply commitment transaction) to the Bitcoin blockchain that locks some pre-defined per-sidechain stake in Bitcoins that secures the sidechain from Byzantine faults. This commitment is time-limited (the transaction is a very special form of CLTV-transaction) and must be longer than the duration of two next epochs of the sidechain.

To construct the commitment transaction committer needs to participate a special distributed shared secret protocol named Apophis, which leads to the creation of public-private ECDSA key pair in such a way that the public key is known to all of the participants while the private key can be revealed only with a threshold signature from the honest majority of the Apophis protocol (which later becomes the honest majority of the sidechain epoch).

The sidechain is blockchain-based replicating state machine with a shared global state. Its state can be updated within epoch by the leader of particular sidechain protocol such that each of the leaders should produce some amount of blocks strictly proportional to the stake locked in the commitment transaction. By the end of the epoch the sidechain leaders must reach finality in a consensus on the global sidechain state. Typhon protocol leaves other details of the sidechain implementation flexible and up to particular sidechain design.

At the end of each epoch the stakes of the leaders that have been found Byzantine-faulty by the sidechain honest majority are slashed to the main chain miner that will include the slashing transaction to the bitcoin blockchain while the rest of the leaders will be able to unlock their funds at the end of the next epoch.

Main chain bitcoins can be moved to and from the sidechain in a quick manner using atomic swap contracts between the main chain and sidechain participants.

• The protocol does not require to lock the funds in order to transfer them off-chain, instead it relies on atomic swaps with the main chain for liquidity provision
• The funds locked in the commitment transactions are just time-locked and can't be used off-chain like with 2-way pegs or Lightning payment channel HTLC-contracts.
• No other party is required to participate the Typhon sidechain, while Lightning protocol requires to find the other party for payment channel setup and 2-way-pegged sidechain requires federation for the multisig peg contract.
• Quick on-chain settlement/finalization, while the closing of Lightning channels or releasing funds from the peg takes much more time.
• No complex multisig or multiparty unsigned contracts required: each of the participants enters and leaves the Typhon sidechain with a much simple P2WSH/P2SH transaction with only one output. The commitment transaction occupies much smaller on-chain size than multisig transactions from sidechain federation or Lightning payment channel.

The protocol is run by all parties wishing to participate the sidechain epoch. It utilizes homomorphic properties of public keys on elliptic curves.

The protocol results in the creation and revealing of epoch-specific ECDSA public keys P(a) specific to each party a and the creation of corresponding party-specific unknown private keys x(a). Private keys are unknown because they are kept in distributed way by all protocol participants in a form of shared secrets under threshold signatures algorithm so each of them can't be revealed without agreement from the honest majority of the participants.

A party running the protocol must follow this algorithm:

∀ a ∈ N:                     -- each participating party 'a':
    rₐ ← rand()                 -- generates random number - a private key
    Pₐ ← rₐG                    -- derives secp256k1 public key with generator G
    Hₐ ← RIPEMD160(Pₐ.x)        -- hashes x-coordinate of the public key
    sₐ ← ECDSA(Hₐ,rₐ)           -- creates a signature for the hash using the generated private key
    ⟨Hₐ,sₐ⟩ ⇢ 𝒩                -- publishes the hash and signature to the network
    SSSS<rₐ> ⇢ 𝒩               -- runs Shamir secret sharing scheme against the private key
                                -- and its digital signature with the network (with some modificaions from #2)
    ℍ ← ∅                       -- instantiates set for keeping all hashes and signatures 
                                -- of the other parties
    ∀ ⟨Hₓ,sₓ | x ∈ N⟩ ⇠ 𝒩      -- for each x-th hash-signature tuple collected from the network:
        ℍ ← ℍ ∪ { ∀ ⟨Hₓ,sₓ⟩ }       -- saves correct hashes and signatures
    |ℍ| = |N|:                  -- when all the signatures are collected, the party 'a':
        Pₐ ⇢ 𝒩                    -- publishes the public key to the network
        ℙ ← ∅                      -- instantiates set for public keys of the other parties 'x' 
        ∀ Pₓ | x ∈ N ⇠ 𝒩:         -- for each x-th public key collected from the network, the party 'a':
            RIPEMD160(Pₓ) = Hₓ:       -- checks that the public key corresponds to 
                                      -- the hash commitment by the party 'x', the party 'a':
                valid(sₓ, Pₓ):           -- checks the stored signature against 
                                         -- the collected public key
                    ℙ ← ℙ ∪ { Pₓ }          -- collects all valid public keys
        |ℙ| = |N|:                 -- when everything is collected, the party:
            Tₐ ← Pₐ + RIPEMD160(|| ℙ) * G
            Tₐ ← tweak(Pₐ, ℙ)         -- creates a homomorphically-derived public key
                                      -- by tweaking public key using the rest of the public keys 
                                      -- from the other parties

At the end of this protocol each party will have its own tweaked (homomorphically-derived) public key T_a which can be used for creating the commitment transaction lately (see the next section).

The private key is not revealed during the normal flow of the protocol; it is used only in case of the discovered Byzantine faults during the epoch (see below). In such a case each of the honest majority M parties a must execute the following protocol against the Byzantyne-fault party e:

∀ a ∈ M:
    rₑ ← SSRS<xₐ>               -- obtain private key of the Byzantine-fault party e 
                                -- using Shamir secret reveal scheme
    xₑ ← rₑ + RIPEMD160(|| ℙ)
    xₑ ← tweak(rₑ, ℙ)           -- obtain tweaked private key corresponding to the Tₑ public key 
                                -- used by the Byzantine fault party to sign its commitment transaction 

TL;DR: Apophis is another snake from Greek (and initially Egyptian) mythology, a predecessor of the Typhon. It hides in a dark abyss in the underworld, like the private keys from the protocol above are hidden behind threshold secret sharing algorithm.

Commitment transaction is published by a committer – the party interested in joining the Typhoon consensus participants.

Let A be a un-tweaked public key of the committer and H(A) the RIPMD160 hash value derived from it. Then the ScriptPubKey of the commitment transaction should contain the following script:

// This is one of the options for the commiter to specify sidechain id so the transaction can be 
// attributed to the specific sidechain
<SidechainID>
OP_DROP

// Now at the top of the stack we have content provided by ScriptSig unlocking transaction, so we
// proceed with CLTV-enhanced P2PKH scripts
OP_DUP
OP_HASH160

// This code ('branch') is used by the committer if there were no Byzantine fault discovered by 
// the honest majority.
// This is normal P2PKH transaction enhanced with CLTV script to enable suffiicient time until
// the epoch was finalized + another epoch for the honest majority to reach the agreement that
// there were no Byzantine faults
<H(A)> 
OP_EQUAL
OP_IF
    <Time-for-two-epochs> 

// Branch used by the honest community if it has agreed upon Byzantine fault of the committer
// In such case they reveal the hidden private key x_a corresponding to the public key T_a
// by running the reveal stage of the threshold secret sharing protocol
OP_ELSE
    <H(T_a)>
    OP_EQUALVERIFY
    <Time-for-one-epoch + some additional time> 

OP_ENDIF

// At top of the stack we have lock time value, so let's check it
OP_CHECKLOCKTIMEVERIFY
OP_DROP

// In both cases we still need to check that the spending transaction is signed with the proper
// private key
OP_CHECKSIG

This script reveals no more private information about the committer or any other party participating sidechain than a normal P2PKH transaction. In fact it is composed of two P2PKH branches enhanced with CLTV part.

Additionally to the committment transaction, commiter signs and provides to the network a special slashing transaction spending the committment transaction output to OP_RETURN as specified in #4. This transaction will be used lately by the rational majority in case of byzantine fault of the committer, as described below.

Let ECDSA(*) be a signature with some private key *. According to the notation from the previous sections, x_a is the private key that can be only discovered by the rational majority in case they can reach the agreement that the committer (party i) had performed a Byzantine fault within the epoch time scope corresponding to the original commitment transaction. T_a is the public key of the committer revealed as a result of the Apophis protocol; y and A are the normal private and public keys of the committer.

Once the x_a becomes revealed any participant of the rational majority can construct and publish slashing transaction spending UTXO from the commitment transaction to the OP_RETURN output. This transaction will contain the following SigScript: <ECDSA(x_a)> <T_a>.

This script will become valid only after the CLTV time from the second branch of the commitment transaction will pass , so other participants of the rational majority have an opportunity to publish their versions with the same unlocking script, but spending the locked amount to different UTXOs, but with a higher miner fee. This will lead to the "fees race", effectively resulting in Nash equilibrium when practically all of the locked amount is spent for the mining fee, i.e. the money will be transferred to the miner who will include the slashing transactions into the blockchain, guaranteeing fast and efficient slashing before the other CLTV lock will expire. This also keeps economic incentives of the honest majority intact: they win nothing by cooperating against other participants, so the Nash equilibrium for the sidechain consensus protocol is not distorted. NOT NEEDED WITH #4 IMPROVEMENT

If there were no witnessed Byzantine fault from the committer, he will be able to unlock its funds at the end of the second epoch with the usual SigScript: <ECDSA(y)> <A> without the risks that some other parties will be able to spend the UTXO of the commitment transaction.

I would like to thank Giacomo Zucco for the fruitful discussions on Bitcoin technology stack and its future directions; as well for his critics and analytics that inspired me to do this work. I am also very grateful to the whole Pandora project and Garuda.AI teams, with which I spent many hours working on different consensus protocol designs and distributed technologies research.