Research Pulse Issue #15 05/28/21

  1. Foundations for the Security Analysis of Distributed Blockchain Applications
    Author: Clara Schneidewind

Cryptocurrencies do not only allow for money transfers in the absence of a trusted third party but also enable the execution of distributed applications. Due to the rapid pace of development of cryptocurrencies, the foundations of such applications have not been rigorously studied. This is particularly problematic since in these applications, real money is at stake, and security breaches regularly cause severe financial losses.
In this thesis, we present two systematic approaches to reliably verify the security of distributed blockchain applications based on formal foundations. To this end, we focus on the cryptocurrencies with the highest market capitalization, Bitcoin and Ethereum. In Ethereum, distributed applications are realized as smart contracts, reactive programs written in Ethereum’s expressive scripting language. In contrast, Bitcoin supports only a basic scripting language, and advanced applications are realized as peer-to-peer cryptographic protocols that resort to the execution of simple smart contracts in case of disputes among peers. As a result, the challenge in verifying distributed applications on the Ethereum blockchain lies in the study and abstraction of the semantics of Ethereum’s evolved scripting language, whereas Bitcoin, the study of distributed applications, requires a systematic analysis of the cryptographic protocols.
In the thesis, we first formalize the formerly under-specified semantics of Ethereum’s native smart contract language EVM bytecode and implement the semantics in the proof assistant. In this context, we formally characterize relevant generic properties for smart contract security, which capture real-world attack scenarios.
We then survey existing automated static analyzers for Ethereum smart contracts unveiling the weaknesses in the semantic foundations of these tools and the practical impact of these weaknesses on the analysis results. Based on these findings, we propose our own automatic static analysis tool for Ethereum smart contracts, which comes with a rigorous soundness proof while still showing competitive performance. In this course, we also propose a general framework for the modular and semantic-driven development of automatic static analyzers.
Finally, we study the security of payment channel networks for Bitcoin. Payment channel networks are distributed protocols that allow for efficient and cheap payments between Bitcoin users and offer a promising solution to Bitcoin’s scalability problems. We unveil a security issue in Bitcoin’s existing payment channel network implementation and formally characterize the relevant security and privacy notions in this context. We further develop a cryptographic primitive for the construction of payment channel networks with formal security guarantees.


  1. Summary of: A Federated Society of Bots for Smart Contract Testing
    Authors: Emanuele Viglianisi, Mariano Ceccato, and Paolo Tonella

The peculiar novelty of smart contracts is a computational model where irreversible transactions are stored in a distributed persistent data storage, namely the blockchain. The technical nature of this new type of software opens to new kinds of faults, which require specific test capabilities to be revealed. In this paper we present SOCRATES, an extensible and modular framework to automatically test smart contracts. The distinctive features of SOCRATES are: (1) a collection of composable behaviours that exercise smart contracts in the blockchain; (2) it deploys a society of bots, with the purpose of detecting defects arising from multi-user interactions, which are impossible to reveal when deploying a single bot. Our empirical investigation demonstrates that SOCRATES is able expose both known and previously unknown faults in smart contracts that are actively run in the official Ethereum blockchain. Moreover, we show that a society of multiple bots is more efficient in fault exposure than a single bot alone.

Link: Summary of: A Federated Society of Bots for Smart Contract Testing | IEEE Conference Publication | IEEE Xplore

  1. A Formal Specification Smart-Contract Language for Legally Binding Decentralized Autonomous Organizations
    Authors: Vimal Dwivedi, Alex Norta, Alexander Wulf, Benjamin Leiding, Sandeep Saxena, and Chibuzor Udokwu

Blockchain- and smart-contract technology enhance the effectiveness and automation of business processes. The rising interest in the development of decentralized autonomous organizations (DAO) shows that blockchain technology has the potential to reform business and society. A DAO is an organization wherein business rules are encoded in smart-contract programs that are executed when specified rules are met. The contractual- and business semantics are sine qua non for drafting a legally-binding smart contract in DAO collaborations. Several smart-contract languages (SCLs) exist, such as SPESC, or Symboleo to specify a legally-binding contract. However, their primary focus is on designing and developing smart contracts with the cooperation of IT- and non-IT users. Therefore, this paper fills a gap in the state of the art by specifying a smart-legal-contract markup language (SLCML) for legal- and business constructs to draft a legally-binding DAO. To achieve the paper objective, we first present a formal SCL ontology to describe the legal- and business semantics of a DAO. Secondly, we translate the SCL ontology into SLCML, for which we present the XML schema definition. We demonstrate and evaluate our SLCML language through the specification of a real life-inspired Sale-of-Goods contract. Finally, the SLCML use-case code is translated into Solidity to demonstrate its feasibility for blockchain platform implementations.

Link: A Formal Specification Smart-Contract Language for Legally Binding Decentralized Autonomous Organizations | IEEE Journals & Magazine | IEEE Xplore

  1. The Complex Community Structure of the Bitcoin Address Correspondence Network
    Authors: Jan Alexander Fischer, Andres Palechor, Daniele Dell’Aglio, Abraham Bernstein, and Claudio J. Tessone

Bitcoin is built on a blockchain, an immutable decentralised ledger that allows entities (users) to exchange Bitcoins in a pseudonymous manner. Bitcoins are associated with alpha-numeric addresses and are transferred via transactions. Each transaction is composed of a set of input addresses (associated with unspent outputs received from previous transactions) and a set of output addresses (to which Bitcoins are transferred). Despite Bitoin was designed with anonymity in mind, different heuristic approaches exist to detect which addresses in a specific transaction belong to the same entity. By applying these heuristics, we build an Address Correspondence Network: in this representation, addresses are nodes are connected with edges if at least one heuristic detects them as belonging to the same entity. In this paper, we analyse for the first time the Address Correspondence Network and show it is characterised by a complex topology, signalled by a broad, skewed degree distribution and a power-law component size distribution. Using a large-scale dataset of addresses for which the controlling entities are known, we show that a combination of external data coupled with standard community detection algorithms can reliably identify entities. The complex nature of the Address Correspondence Network reveals that usage patterns of individual entities create statistical regularities; and that these regularities can be leveraged to more accurately identify entities and gain a deeper understanding of the Bitcoin economy as a whole.


  1. LNGate: Powering IoT with Next Generation Lightning Micro-payments using Threshold Cryptography
    Author: Ahmet Kurt, Suat Mercan, Omer Shlomovits, Enes Erdin, and Kemal Akkaya

Bitcoin has emerged as a revolutionary payment system with its decentralized ledger concept however it has significant problems such as high transaction fees and long confirmation times. Lightning Network (LN), which was introduced much later, solves most of these problems with an innovative concept called off-chain payments. With this advancement, Bitcoin has become an attractive venue to perform micro-payments which can also be adopted in many IoT applications (e.g. toll payments). Nevertheless, it is not feasible to host LN and Bitcoin on IoT devices due to the storage, memory, and processing requirements. Therefore, in this paper, we propose an efficient and secure protocol that enables an IoT device to use LN through an untrusted gateway node. The gateway hosts LN and Bitcoin nodes, and can open & close LN channels, send LN payments on behalf of the IoT device. This delegation approach is powered by a (2,2)-threshold scheme that requires the IoT device and the LN gateway to jointly perform all LN operations which in turn secures both parties’ funds. Specifically, we propose to thresholdize LN’s Bitcoin public and private keys as well as its commitment points. With these and several other protocol level changes, IoT device is protected against revoked state broadcast, collusion and ransom attacks. We implemented the proposed protocol by changing LN’s source code and thoroughly evaluated its performance using a Raspberry Pi. Our evaluation results show that computational and communication delays associated with the protocol are negligible. To the best of our knowledge, this is the first work that implemented threshold cryptography in LN.


  1. Legendre PRF (Multiple) Key Attacks and the Power of Preprocessing
    Authors: Alexander May and Floyd Zweydinger

Due to its amazing speed and multiplicative properties the Legendre PRF recently finds widespread applications e.g. in Ethereum 2.0, multiparty computation and in the quantum-secure signature proposal LegRoast. However, its security is not yet extensively studied.
The Legendre PRF computes for a key k on input x the Legendre symbol Lk(x) = x+k p in some finite field Fp. As standard notion, PRF security is analysed by giving an attacker oracle access to Lk(·). Khovratovich’s collision-based algorithm recovers k using Lk(·) in time √p with constant memory. It is a major open problem whether this birthday-bound complexity can be beaten.
We show a somewhat surprising wide-ranging analogy between the discrete logarithm problem and Legendre symbol computations. This analogy allows us to adapt various algorithmic ideas from the discrete logarithm setting.
More precisely, we present a small memory multiplekey attack on m Legendre keys k1, . . . , km in time √mp, i.e. with amortized cost p p/m per key. This multiplekey attack might be of interest in the Ethereum context, since recovering many keys simultaneously maximizes an attacker’s profit.
Moreover, we show that the Legendre PRF admits precomputation attacks, where the precomputation depends on the public p only – and not on a key k. Namely, an attacker may compute e.g. in precomputation time p 2 3 a hint of size p 1 3 . On receiving access to Lk(·) in an online phase, the attacker then uses the hint to recover the desired key k in time only p 1 3 . Thus, the attacker’s online complexity again beats the birthday-bound.
In addition, our precomputation attack can also be combined with our multiple-key attack. We explicitly give various tradeoffs between precomputation and online phase. E.g. for attacking m keys one may spend time mp 2 3 in the precomputation phase for constructing a hint of size m2 p 1 3 . In an online phase, one then finds all m keys in total time only p 1 3 .
Precomputation attacks might again be interesting in the Ethereum 2.0 context, where keys are frequently changed such that a heavy key-independent precomputation pays off.


  1. FairMM: A Fast and Frontrunning-Resistant Crypto Market-Maker
    Author: Michele Ciampi, Muhammad Ishaq, Malik Magdon-Ismail, Rafail Ostrovsky, and Vassilis Zikas

As new and emerging markets, crypto(-currency/-token) markets are susceptible to manipulation and illiquidity. The theory of market economics, offers market makers that bear the promise of bootstrapping/stabilizing such markets and boosting their liquidity. In order, however, to achieve these goals, the market maker operator (typically an exchange) is assumed trusted against manipulations. Common attempts to remove/weaken this trust assumption require several on-chain rounds per trade or use expensive MPC machinery, and/or are susceptible to manipulative market-maker operators that perform informed front-running attacks—i.e., manipulate the sequence of trades using future trade information. Our work proposes a market-maker-based exchange which is resilient against a wide class of front-running (in particular, reordering attacks). When instantiated with a monopolistic profit seeking market maker our system yields a market where the trading price of crypto-tokens converges to a bid-ask spread centered around their true valuation. Importantly, after an initial setup of appropriate smart contracts, the trades are done in an off-chain fashion and smart contracts are invoked asynchronously to the trades. Our methodology yields a highly efficient exchange, where the market maker’s compliance is ensured by a combination of a rational market analysis, cryptographic mechanisms, and smart-contract-based collaterals. We have implemented our exchange in Ethereum and showcase its competitive throughput, its performance under attack, and the associate gas costs.


  1. Non-Fungible Token (NFT): Overview, Evaluation, Opportunities and Challenges
    Authors: Qin Wang, Rujia Li, Qi Wang, and Shiping Chen

The Non-Fungible Token (NFT) market is mushrooming in the recent couple of years. The concept of NFT originally comes from a token standard of Ethereum, aiming to distinguish each token with distinguishable signs. This type of tokens can be bound with virtual/digital properties as their unique identifications. With NFTs, all marked properties can be freely traded with customized values according to their ages, rarity, liquidity, etc. It has greatly stimulated the prosperity of the decentralized application (DApp) market. At the time of writing (May 2021), the total money used on completed NFT sales has reached 34 , 530 , 649 .86 USD. The thousandfold return on its increasing market draws huge attention worldwide. However, the development of the NFT ecosystem is still in its early stage, and the technologies of NFTs are pre-mature. Newcomers may get lost in their frenetic evolution due to the lack of systematic summaries. In this technical report, we explore the NFT ecosystems in several aspects. We start with an overview of state-of-the-art NFT solutions, then provide their technical components, protocols, standards and desired proprieties. Afterwards, we give a security evolution, with discussions on the perspectives of their design models, opportunities and challenges. To the best of our knowledge, this is the first systematic study on the current NFT ecosystems.


  1. Evaluation of Ethereum End-to-end Transaction Latency
    Authors: Lin Zhang, Brian Lee, Yuhang Ye, and Yuansong Qiao

Ethereum is a promising but revolutionary blockchain approach to support rich computational services enabled by Turing-complete instructions, also known as smart contract. Using smart contract as “back-end”, any party can publish its Decentralized Applications (DApps) available to all Internet users. In other words, blockchain and smart contract enable evolving existing Internet services and applications to decentralised versions. With the developments of versatile Internet applications, the QoS requirements can be very different. For example, new-age applications such as AR/VR can be quite sensitive to even millisecond delays. End-to-end transaction latency in blockchain is a critical factor that affects the performance of DApps. It is the time duration from sending out a transaction (from the client) to having the transaction recorded on the chain. In this paper, we experimentally evaluate the end-to-end latency in Ethereum and discuss the factors that may affect latency on the Ethereum main-net. It has a particular focus on the gas price because it is a key parameter controlled by users. The experiment results demonstrate some counter intuitive finding, e.g. increasing gas price does not reduce the Ethereum end-to-end latency significantly for a certain range of gas prices.

Link: Evaluation of Ethereum End-to-end Transaction Latency | IEEE Conference Publication | IEEE Xplore

  1. On the Randomness Complexity of Interactive Proofs and Statistical Zero-Knowledge Proofs
    Authors: Benny Applebaum and Eyal Golombek

We study the randomness complexity of interactive proofs and zero-knowledge proofs. In particular, we ask whether it is possible to reduce the randomness complexity, R, of the verifier to be comparable with the number of bits, CV , that the verifier sends during the interaction. We show that such randomness sparsification is possible in several settings. Specifically, unconditional sparsification can be obtained in the non-uniform setting (where the verifier is modelled as a circuit), and in the uniform setting where the parties have access to a (reusable) common-random-string (CRS). We further show that constant-round uniform protocols can be sparsified without a CRS under a plausible worst-case complexity-theoretic assumption that was used previously in the context of derandomization.
All the above sparsification results preserve statistical-zero knowledge provided that this property holds against a cheating verifier. We further show that randomness sparsification can be applied to honest-verifier statistical zero-knowledge (HVSZK) proofs at the expense of increasing the communication from the prover by R−F bits, or, in the case of honest-verifier perfect zero-knowledge (HVPZK) by slowing down the simulation by a factor of 2 R−F . Here F is a new measure of accessible bit complexity of an HVZK proof system that ranges from 0 to R, where a maximal grade of R is achieved when zeroknowledge holds against a “semi-malicious” verifier that maliciously selects its random tape and then plays honestly. Consequently, we show that some classical HVSZK proof systems, like the one for the complete Statistical-Distance problem (Sahai and Vadhan, JACM 2003) admit randomness sparsification with no penalty.
Along the way we introduce new notions of pseudorandomness against interactive proof systems, and study their relations to existing notions of pseudorandomness.


  1. Analysis of Bitcoin Vulnerability to Bribery Attacks Launched Through Large Transactions
    Authors: Ghader Ebrahimpour and Mohammad Sayad Haghighi

Bitcoin uses blockchain technology to maintain transactions order and provides probabilistic guarantee to prevent double-spending, assuming that an attacker’s computational power does not exceed %50 of the network power. In this paper, we design a novel bribery attack and show that this guarantee can be hugely undermined. Miners are assumed to be rational in this setup and they are given incentives that are dynamically calculated. In this attack, the adversary misuses the Bitcoin protocol to bribe miners and maximize their gained advantage. We will reformulate the bribery attack to propose a general mathematical foundation upon which we build multiple strategies. We show that, unlike Whale Attack, these strategies are practical. If the rationality assumption holds, this shows how vulnerable blockchain-based systems like Bitcoin are. We suggest a soft fork on Bitcoin to fix this issue at the end.


  1. Towards A First Step to Understand Flash Loan and Its Applications in DeFi Ecosystem
    Authors: Dabao Wang, Siwei Wu, Ziling Lin, Lei Wu, Xingliang Yuan, Yajin Zhou, Haoyu Wang, and Kui Ren

Flash Loan, as an emerging service in the decentralized finance ecosystem, allows users to request a non-collateral loan. While providing convenience, it also enables attackers to launch malicious operations with a large amount of asset that they do not have. Though there exist spot media reports of attacks that leverage Flash Loan, there lacks a comprehensive understanding of existing Flash Loan services.
In this work, we take the first step to study the Flash Loan service provided by three popular platforms. Specifically, we first illustrate the interactions between Flash Loan providers and users. Then, we design three patterns to identify Flash Loan transactions. Based on the patterns, 76, 303 transactions are determined. The evaluation results show that the Flash Loan services get more popular over time. At last, we present four Flash Loan applications with real-world examples and propose two potential research directions.



Research Pulse was flooded with interesting papers this week as graduation season approaches!

At the top of the list is Foundations for the Security Analysis of Distributed Blockchain Applications by SRCF contributor, Clara Schneidewind. This work provides a holistic analysis of the security properties of today’s most popular base layer cryptonetworks, Bitcoin and Ethereum, with an emphasis on the semantics of the EVM and security of the lightning network.

The intersection of smart contracts and real-world, legally binding contracts has been underexplored by legal scholars. In A Formal Specification Smart-Contract Language for Legally Binding Decentralized Autonomous Organizations, the authors formally specify a smart-legal-contract markup language (SLCML) for legal and business constructs. As a use case, they employ the markup language to draft a legally binding DAO.

Finally, in The Complex Community Structure of the Bitcoin Address Correspondence Network the authors provide incredibly interesting data on the relationships between Bitcoin addresses by building an Address Correspondence Network. In this study, addresses are represented as nodes connected with edges if at least one heuristic detects them as belonging to the same entity.


The article Non-Fungible Token (NFT): Overview, Evaluation, Opportunities and Challenges. Authors: Qin Wang, Rujia Li, Qi Wang, and Shiping Chen is a great overview and evaluation of Non-Fungible tokens (“NFTs”). It is interesting to have an aerial view of what an NFT is, how it works, and the current design models. The article goes further to elucidate opportunities and challenges that are presented with the use of NFTs. Areas I really noted were the opportunities for NFTs in boosting the gaming industry, enhancing digital collectibles, virtual events, and even inspiring the Metaverse. The security challenges and solutions outlined were really informative. The truth is, when we consider the global spending on NFTs within such a short amount of time, it is important for us to take notes of the trends, evaluate them and consider where all this could lead to. The article mentions the need for a systematic study of NFTs which is not currently present, and which this article delves into. I would like to inquire into this a little further. Do you have any thoughts as to how this could be further carried out? What exactly would a further systematic study of NFTs entail? How do we test and analyze for measurable results as the NFT technologies are still in the infancy stage? NFTs going into the Metaverse is a whole new world. We haven’t even begun to scratch the surface.


@cipherix Per your recommendation, I recently looked into #5 and wanted to add some color here.

In [1], the researchers propose a lightweight (2,2)-threshold cryptography-based protocol to enable resource-constrained IoT devices to perform secure and efficient micro-payments using Bitcoin’s Lightning Network (LN). While past research explores IoT and LN integration solutions, this study is one of the first to apply threshold cryptography in LN. By modifying the source code of the existing Basis of Lightning Technology (BOLT) #2 protocol, the researchers successfully connected IoT devices to LN channels. The results of the experiment indicate that the protocol yields minimal computational and communication delays. Moreover, the findings show that LNGate is cost-effective, enhances security, and imposes modest bandwidth requirements on IoT devices. The scope of this review aims to cover how LNGate may circumvent the barriers of constrained IoT devices to bridge IoT devices to LN operations and mitigate security threats.

LN has emerged as a solution to the drawbacks of Bitcoin, namely, to improve confirmation delay, poor scalability, and considerable transaction fees within the context of payment channel networks (PCN). However, the resource requirements of LN, particularly communication, computation, and storage, exceed the capacities of IoT devices, making direct integration impractical. More specifically, to operate LN would entail enough computational ability to run consensus mechanisms, reliable connectivity, and “340 GB of storage” to host the LN node and an entire Bitcoin node [1]. On the other hand, IoT devices are subject to security threats like collusion, ransom attacks, and vulnerability to fund-embezzlement. In order to address these limitations and permit IoT devices to support LN functions, the researchers propose LNGate, a modified BOLT #2 protocol.

Essentially, LNGate allows for IoT devices to access PCN to make micro-payments without actually hosting Bitcoin nodes or LN nodes. Rather, the LN gateway hosts the nodes and runs the modified protocol, thereby granting an IoT device the means to request to open channels, send payments, and close channels in exchange for minor service fees. LNGate emphasizes jointly “thresholdizing commitment points” [1]. Conditioning the commitment transaction outputs prevents the broadcast of revoked states and ensures that cheating is disincentivized [1]. In sum, LNGate exercises additional precautionary measures to protect participating entities engaged in micro-payment processes.

In this study, the deployment of LNGate mitigates several security threats. According to the researchers, it deters collusion since each time a payment is made, the change is reflected by an increase in either the LN gateway or bridge LN node channel’s balance. On the flip side, LNGate prevents ransom attacks as the LN gateway is motivated to acquire services fees from the IoT device. Regarding fund-embezzlement, should the LN gateway derail funds, it runs the risk of losing all the profits collected from the IoT device throughout the duration of the channel. One scenario that the researchers do not address, however, is the event of the bridge LN node broadcasting revoked states. With that in mind, security remains an open area of research.

Considering the increasing ubiquity of IoT devices and the upward trends in automation, LNGate shows promise as a sure and effective step in this direction. For instance, the researchers outline a device-to-device use case in which LNGate is used to secure automatic toll payments from a vehicle’s on-board-unit. In this case, payments made with cryptocurrency are preferable to traditional payment methods because they offer more privacy and eliminate third-parties, thereby reducing overhead and human interference. On a final note, it would be useful to examine other potential LNGate use cases or protocols with similarity to LNGate for comparison.

[1] A. Kurt, S. Mercan, O. Shlomovits, E. Erdin, K. Akkaya. “LNGate: Powering IoT with Next Generation Lightning Micro-payments using Threshold Cryptography,” In
WiSec '21: 14th ACM Conference on Security and Privacy in Wireless and Mobile Networks, 2021, pp. 117-128.


Beautiful research work…quite enlightening

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Were there any articles that seemed particularly impactful to you? It’s always interesting to hear how someone might use research in the real world. And I think it’s really cool how deep you dug in the archive! For me #12 (Towards A First Step to Understand Flash Loan and its implications in the DeFi Ecosystem) was an exciting read, it gave me a nice introduction to one of more strange and chaotic areas of DeFi.