How to deal with malleability of BitCoin transactions

TL;DR

This paper presents a technique to create malleability-resilient Bitcoin 'refund' transactions that do not require protocol modifications, enhancing security in protocols using refunds, such as two-party computations.

Contribution

The paper introduces a general method for constructing malleability-resistant refund transactions without altering the Bitcoin protocol.

Findings

The technique effectively prevents transaction malleability issues.

Application of the method achieves fairness in two-party computations.

No changes to the Bitcoin protocol are necessary.

Abstract

BitCoin transactions are malleable in a sense that given a transaction an adversary can easily construct an equivalent transaction which has a different hash. This can pose a serious problem in some BitCoin distributed contracts in which changing a transaction's hash may result in the protocol disruption and a financial loss. The problem mostly concerns protocols, which use a "refund" transaction to withdraw a deposit in a case of the protocol interruption. In this short note, we show a general technique for creating malleability-resilient "refund" transactions, which does not require any modification of the BitCoin protocol. Applying our technique to our previous paper "Fair Two-Party Computations via the BitCoin Deposits" (Cryptology ePrint Archive, 2013) allows to achieve fairness in any Two-Party Computation using the BitCoin protocol in its current version.