TapThresh: Privacy-Preserving Threshold Protocol Using Bitcoin Taproot

Abstract

Threshold transactions in Bitcoin is an effective solution for vulnerability of wallets to the loss or compromise of secret keys. It also enhances the applicability of Bitcoin to include use-cases that require partitioning the trust among a set of parties. Currently, the threshold transactions on Bitcoin expose the actual signers within the group of participants. This poses a threat of wallet hacks or theft targeting these signers. To address this issue of privacy, we propose a novel protocol to create threshold transaction using a combination of on-chain locking and off-chain proof of knowledge. As Bitcoin currently does not support verification of zero-knowledge schemes, the proposed protocol uses a Trusted Third Party ( TTP ) to verify the proofs off-chain. The trust on the third party is only limited to its service of signing on behalf of the users. The main contribution is the development and applicability of a m-out-of-N proof of partial knowledge that maintains the privacy of the signers both on-chain from the transaction verifiers and off-chain from the TTP and other signers as well. The protocol leverages Taproot’s spending path flexibility to incorporate dual spending capabilities and employs off-chain zero knowledge Σ-protocols to prove knowledge of private keys without disclosing their associated public keys. Experimental analysis demonstrates improved scalability and privacy than the mainstream threshold signature schemes for Bitcoin. A formal analysis demonstrates and establishes the security goals of the proposed mechanism.