Security and Scalability Benefits of UTXO-based Overlay Networks

Ty Everett ([e-mail])

Abstract

Various methods exist for keeping track of systems that derive their state from the Bitcoin network. Some architectures require all parties to have awareness of all transactions to prevent divergence in their computed view of the state. This leads to the need for trust in centralized indexing systems, as it is not feasible for end-users to be aware of all transactions at scale. This BRC argues that UTXO-based overlay networks offer a more secure and scalable approach to managing these states.

Motivation

While indexers can't forge transactions or signatures that never existed, they can potentially withhold pertinent information from clients. When higher-order application states are computed by these indexing systems and served to clients, the clients must trust that the indexers are providing all relevant information without omission. In these systems, there is no intrinsic way to link causal events or updates (multiple future transactions could constitute future direct updates according to arbitrary rules), and no mechanism exists for clients to effectively reconcile the state and chain of events with the rest of the network without trust. This is in contrast to a UTXO-native approach, where clear rules state that only a single future event (the spend) can ever constitute an update.

Argument

There are several advantages to UTXO-based overlay network architectures. These include:

• Double-spend prevention: Miners ensure that at most one potential future input can ever consume a given output. Knowledge of a given output constitutes knowledge that at most one future input will ever consume such output, updating the state.

• Clients stay in sync: Clients are kept in sync with the rest of the network for several reasons:

  a. Any attempt to mutate the state of the network will either succeed or be immediately rejected by the miners if it is a double-spend.

  b. In case of a double-spend, it is possible to discover the spending transaction which the client was previously unaware of, and take it into account for future operations.

  c. The client does not need to trust an indexing system to provide the latest state; if old data or an incomplete chain of spends is provided, the client will easily be made aware by miners if they attempt to spend already-spent UTXOs.

• Reduced data processing: Clients need only be aware of the specific UTXOs pertinent to their interactions, giving them knowledge of the specific spending constraints that can later constitute updates to their data. They rely on miners to guard against double spends, benefiting from an inherently reliable way to reconcile state in the event they do occur.

UTXO-based overlay networks provide a more secure and scalable approach to overlay network design that removes the need for trusted blockchain scanning systems while ensuring network participants don't need to process all data themselves. This results in a more efficient and trustless way of managing states derived from the Bitcoin network.