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First pass at a more formal contracts doc

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This document describes smart contracts that can be setup using Grin even
though the Grin chain does not support scripting. All these contracts rely
on a few basic features that are built in the chain and compose them in
increasingly clever ways.
None of those constructs are fully original or invented by the authors of this
document or the Grin development team. Most of the credit should be attributed
to a long list of cryptographers and researchers. To name just a few: Torben
Pryds Pedersen, Gregory Maxwell, Andrew Poelstra, John Tromp, Claus Peter
Schnorr. We apologize in advance for all those we couldn't name and recognize
that most computer science discoveries are incremental.
h1. Built-Ins
This section is meant as a reminder of some crucial features of the Grin chain.
We assume some prior reading as to how these are constructed and used.
h2. Pedersen Commitments
All outputs include a Pedersen commitment of the form `r*G + v*H` with `r`
the blinding factor, `v` the value, and G and H two distinct generator points
on the same curve group.
h2. Aggregate Signatures (a.k.a. Schnorr, MuSig)
We suppose we have the Blake2 hash function and the same G curve as above. In
its simplest form, an aggregate signature is built from:
* the message `M` to sign, in our case the transaction fee
* a private key `x`, with its matching public key `x*G`
* a nonce `k` just used for the purpose of building the signature
We build the challenge `e = SHA256(M | k*G | x*G)`, and the scalar
`s = k + e * x`. The full aggregate signature is then the pair `(s, k*G)`.
The signature can be checked using the public key `x*G`, re-calculating `e`
using M and `k*G` from the 2nd part of the signature pair and by veryfying
that `s`, the first part of the signature pair, verifies:
```
s*G = k*G + e * x*G
```
In this simple case of someone sending a transaction to a receiver they trust
(see later for the trustless case), an aggregate signature can be directly
built for a Grin transaction by calculating the total blinding factor of inputs
and outputs `r` and using it as the private key `x` above. The resulting
kernel is assembled from the aggregate signature generated using `r` and the
public key `r*G`, and allows to verify non-inflation for all Grin transactions
(and signs the fees).
Because these signatues are built simply from a scalar and a public key, they
can be used to construct a variety of contracts using "simple" arithmetic.
h2. Timelocked Transactions
A transaction can be time-locked with a few simple modifications:
* the message `M` to sign becomes the block height `h` at which the transaction
becomes spendable appended to the fee (so `M = fee | h`)
* the lock height `h` is included in the transaction kernel
* a block with a kernel that includes a lock height lower than the current
block height is rejected
h1. Derived Contracts
h2. Trustless Transactions
An aggregate (Schnorr) signature involving a single party is relatively simple
but does not demonstrate the full flexibility of the contstruction. We show
here how to generalize it for use in outputs involving multiple parties.
As constructed in section 1.2, an aggregate signature requires trusting the
receiving party. As Grin outputs are completely obscured by Pedersen
Commitments, one cannot prove money was actually sent to the right party,
hence a receiver could claim not having received anything. To solve this
issue, we require the receiver to collaborate with the sender in building a
transaction and specifically its kernel signature.
Alice wants to pay Bob in grins. She starts the transaction building process:
1. Alice selects her inputs and builds her change output. The sum of all
blinding factors (change output minus inputs) is `rs`.
2. Alice picks a random nonce ks and sends her partial transaction, `ks*G` and
`rs*G` to Bob.
3. Bob picks his own random nonce `kr` and the blinding factor for his output
`rr`. Using `rr`, Bob adds his output to the transaction.
4. Bob computes the message `M = fee | lock_height`, the Schnorr challenge
`e = SHA256(M | kr*G + ks*G | rr*G + rs*G)` and finally his side of the
signature `sr = kr + e * rr`.
5. Bob sends `sr`, `kr*G` and `rr*G` to Alice.
6. Alice computes `e` just like Bob did and can check that
`sr*G = kr*G + e*rr*G`.
7. Alice sends her side of the signature `ss = ks + e * sr` to Bob.
8. Bob validates `ss*G` just like Alice did for `sr*G` in step 5 and can
produce the final signature `s = (ss + sr, ks*G + kr*G)` as well as the final
transaction kernel including `s` and the public key `rr*G + rs*G`.
This protocol requires 3 data exchanges (Alice to Bob, Bob back to Alice,
and finally Alice to Bob) and is therefore said to be interactive. However
the interaction can be done over any medium and in any period of time,
including the pony express over 2 weeks.
This protocol can also be generalized to any number `i` of parties. On the
first round, all the `ki*G` and `ri*G` are shared. On the 2nd round, everyone
can compute `e = SHA256(M | sum(ki*G) | sum(ri*G))` and their own signature
`si`. Finally, a finalizing party can then gather all the partial signatures
`si`, validate them and produce `s = (sum(si), sum(ki*G))`.
h2. Multiparty Outputs (multisig)
We describe here a way to build a transaction with an output that can only be
spent when multiple parties approve it. This construction is very similar to
the previous setup for trustless transactions, however in this case both the
signature and a Pedersen Commitment need to be aggregated.
This time, Alice wants to sends funds such that both Bob and her need to agree
to spend. Alice builds the transaction normally and adds the multiparty output
such that:
1. Bob picks a blinding factor `rb` and sends `rb*G` to Alice.
1. Alice picks a blinding factor `ra` and builds the commitment
`C = ra*G + rb*G + v*H`. She sends the commitment to Bob.
3. Bob creates a range proof for `v` using `C` and `rb` and sends it to Alice.
4. Alice generates her own range proof, aggregates it with Bob, finalizing
the multiparty output `Oab`.
5. The kernel is built following the same procedure as for Trustless
Transactions.
We observe that for that new output `Oab`, neither party know the whole
blinding factor. To be able to build a transaction spending Oab, someone would
need to know `ra + rb` to produce a kernel signature. To produce that spending
kernel, Alice and Bob need to collaborate. This, again, is done using a
protocol very close to Trustless Transactions.
h2. Multiparty Timelocks
This contract is a building block from multiple other contracts. Here, Alice
agrees to lock some funds to start a financial interaction with Bob and prove
to Bob she has funds. The setup is the following:
* Alice builds a a 2-of-2 multiparty transaction with an output she shares with
Bob, however she does not participate in building the kernel signature yet.
* Bob builds a refund transaction with Alice that sends the funds back to Alice
using a timelock (for example 1440 blocks ahead, about 24h).
* Alice and Bob finish the 2-of-2 transaction by building the corresponding
kernel and broadcast it.
Now Alice and Bob are free to build additional transactions distributing the
funds locked in the 2-of-2 output in any way they see fit. If Bob refuses to
cooperate, Alice just needs to broadcast her refund transaction after the time
lock expires.
This contract can be trivially used for unidirectional payment channels.
h2. Atomic Swap
Alice has grins and Bob has bitcoins. They would like to swap. We assume that
Bob built an output on the Bitcoin blockchain that can be spent either by Alice
if she learns about a hash pre-image `x`, or by Bob after time `Tb`. Alice is
ready to send her grins to Bob if he reveals `x`.
First, Alice sends her grins to a multiparty timelock contract with a refund
time `Ta < Tb`. To send the 2-of-2 output to Bob and execute the swap, Alice
and Bob start as if they were building a normal trustless transaction as
specified in section 2.1.
1. Alice picks a random nonce `ks` and her blinding sum `rs` and sends `ks*G`
and `rs*G` to Bob.
2. Bob picks a random blinding factor `rr` and a random nonce `kr`. However
this time, instead of simply sending `sr = kr + e * rr` with his `rr*G` and
`kr*G`, Bob sends `sr' = kr + x + e * rr` as well as `x*G`.
3. Alice can validate that `sr'*G = kr*G + x*G + rr*G`.
4. Alice sends back her `ss = ks + e * xs` as she normally would, now that she
can also compute `e = Blake2(M | ks*G + kr*G)`.
5. To complete the signature, Bob computes `sr = kr + e * rr` and the final
signature is `(sr + ss, kr*G + ks*G)`.
6. As soon as Bob broadcasts the final transaction to get his new grins, Alice
can compute `sr' - sr` to get `x`.
h2. Hashed Timelocks (Lightning Network)