bips/bip-0127.mediawiki

<pre>
  BIP: 127
  Layer: Applications
  Title: Simple Proof-of-Reserves Transactions
  Authors: Steven Roose <steven@stevenroose.org>
  Status: Complete
  Type: Specification
  Assigned: 2019-01-28
  License: CC0-1.0
  Version: 1.0.0
</pre>


==Abstract==

This BIP describes a simple way to construct proof-of-reserves transactions.
This proposal formalizes a standard format for constructing such proofs, easing
their construction with existing wallet infrastructure and enabling general
proof-verification software.  It relies on existing standards such as regular
Bitcoin transaction serialization/validation and the BIP 174 PSBT format.
The proposal also includes the description of a PSBT extension for a better
user experience.

==Copyright==

This BIP is licensed under the Creative Commons CC0 1.0 Universal license.

==Motivation==

From the very early days in the history of Bitcoin, there have been companies
managing bitcoins for their users.  These users give up control over their coins
in return for a certain service.  Inevitably, there have been many cases of
companies losing their users' bitcoins without timely disclosing such events to
the public.  Proofs of Reserves are a way for companies managing large amounts
of bitcoins to prove ownership over a given amount of funds.  The regular proof
of control helps to ensure that no significant loss has occurred.

While the term proof-of-reserves is not new by any means, the procedure is not
very common among high-value custodian companies.  One of the reasons for this
is that every company that wants to perform a proof-of-reserves has to construct
its own way to do so.  Accordingly, their users have to understand the
construction of the proof in order to be able to verify it.  This raises the bar
of entry both for custodians and for users.


===What this BIP is not doing===

The proof-of-reserve construction described in this document has some known
shortcomings, mostly with regards to its privacy properties.  While there exists
research about improved proof-of-reserves mechanisms that have much better
privacy properties<ref>Dagher, Gaby G., Benedikt Bünz, Joseph Bonneau, Jeremy
Clark, and Dan Boneh. "Provisions: Privacy-preserving proofs of solvency for
Bitcoin exchanges." (2015).</ref>, this BIP intentionally only formalizes
the de-facto existing method.


==Specification==

Our proof construction should have the following properties:
* flexible proof construction to support complex wallet infrastructures
* easy integration with existing wallet solutions (both hardware and software wallets)
* support for verification via a standard procedure, regardless of publisher of the proof
* proof prevents reuse of proofs by other parties by committing to a message
* allow validating that the issuer had the funds under his control at a certain block, regardless of what happened after that block


===Proof Format===

To allow for maximal compatibility with existing systems, proofs are formatted as regular Bitcoin
transactions.  However, one small adaptation to the transaction is made that has two functions:
# make the transaction unspendable to avoid putting funds at risk
# link the proof to the issuer of the proof to prevent copying proofs from other custodians

The resulting construction is a Bitcoin transaction with the following
characteristics:

* The first input (the "commitment input")
** MUST have the txid part of the previous outpoint set to the SHA-256 hash of the commitment message prefixed with "Proof-of-Reserves: "<ref>If the message is "Some Message", the txid part should be <tt>SHA-256("Proof-of-Reserves: Some Message")</tt> with the string encoded as UTF-8.</ref> and index 0.
* The remaining inputs
** MUST have signatures that commit to the commitment input (e.g. using <tt>SIGHASH_ALL</tt>).
* The transaction MUST have a single output that is the exact sum of all the inputs, assuming the commitment input to have 0 value; this means the transaction has no miner fee.

The existence of the first input (which is just a commitment hash) ensures
that this transaction is invalid and can never be confirmed.


===PSBT (BIP 174) extension===

The "commitment input" detailed in the proof format section does not spend an
existing UTXO and thus shouldn't be signed (empty <tt>scriptSig</tt> and
witness).  This can cause some problems when signing this type of transactions.
For example, hardware wallets often require the signer to provide information
about all inputs of transactions they are signing, such as the previous output
or previous transaction; this data obviously doesn't exist for the commitment
inputs.

For most existing devices, it's possible to circumvent these requirements by
providing dummy data or by instructing the device to ignore this specific
input.  However, there is still a UX problem.  Because the hardware wallet
device doesn't recognize the transaction as a proof-of-reserves transaction it
will think it is signing a regular transaction that is spending all the money
in the UTXOs.  Most devices will ask for confirmation with a message along the
lines of "Are you sure you want to send XXX BTC to address [...]?".  This is
not the best user experience.

An addition to the BIP 174 PSBT format could help signing devices to recognize proof-of-reserve transactions.
The following field is added to the BIP 174 <tt>INPUT</tt> map:

* Type: Proof-of-reserves commitment <tt>PSBT_IN_POR_COMMITMENT = 0x09</tt>
** Key: None. The key must only contain the 1 byte type.
*** <tt>{0x09}</tt>
** Value: The UTF-8 encoded commitment message string for the proof-of-reserves.
*** <tt>{porCommitment}</tt>

Wallets processing an input that has this field set
* MUST make sure the txid of the previous outpoint is set to the SHA-256 hash of the prefixed commitment message string, as detailed above;
* MUST assume the input value to be 0 (without requiring the previous output or transaction to be provided);
* SHOULD display the commitment message to ask the user for confirmation before signing any inputs;
* SHOULD only provide signatures with a signature hash that commits to this input;
* SHOULD accept an empty <tt>scriptSig</tt> for this input (as if the <tt>scriptPubKey</tt> was <tt>OP_TRUE</tt>).


==Compatibility==

The proof transaction specification is based on the Bitcoin transaction
serialization protocol and will thus always be compatible with serializers
that can interpret Bitcoin transactions.


==Implementations==

A proof-of-concept implementation of the PSBT extension in the
[https://github.com/rust-bitcoin/rust-bitcoin rust-bitcoin] project can be
found in the <tt>psbt-por</tt> branch here:
https://github.com/stevenroose/rust-bitcoin/tree/psbt-por

A work-in-progress implementation of a tool that produces and verifies proofs
in the described format can be found here:
https://github.com/stevenroose/reserves

An implementation of the custom proof PSBTs is part of the [https://bitcoindevkit.org/ BDK], and can be found here: https://crates.io/crates/bdk-reserves

==Changelog==

* '''1.0.0''' (2026-05-21):
** Advance to Complete
** Remove incomplete and unused protocol buffers part
* '''0.0.1''' (2019-04-03):
** Initial Draft

== Footnotes ==

<references />