Creating a dlc contract

I am trying to create a dlc contract in bitcoin. I found few libraries in multiple programming languages by p2pderivatives

rust-dlc
go-dlc
cfd-dlc-js

Instead of using the libraries, I find it much easier to execute the contract on a bitcoin regtest using bitcoin-cli.

Setting up the environment


    brew install bitcoin

    # start bitcoind in regtest mode as a daemon
    bitcoind -regtest -daemon -fallbackfee=0.0002

    # To create a new address for alice
    bitcoin-cli -regtest createwallet alice
    bitcoin-cli -regtest createwallet bob

    # use loadwallet to load the wallet (if you restart bitcoind)
    bitcoin-cli -regtest loadwallet alice
    bitcoin-cli -regtest loadwallet bob

    bitcoin-cli -regtest -rpcwallet=alice getwalletinfo
    bitcoin-cli -regtest -rpcwallet=bob getwalletinfo

    # Generate some blocks to get initial coins
    bitcoin-cli -regtest generatetoaddress 101 $(bitcoin-cli -regtest -rpcwallet=alice getnewaddress)

    # Send some coins from Alice to Bob
    bitcoin-cli -regtest -rpcwallet=alice sendtoaddress $(bitcoin-cli -regtest -rpcwallet=bob getnewaddress) 10

    # Check the wallet balances
    bitcoin-cli -regtest -rpcwallet=alice getbalance
    bitcoin-cli -regtest -rpcwallet=bob getbalance

    # To delete a wallet (if you want to start fresh)
    bitcoin-cli -regtest unloadwallet alice

Both parties alice and bob need to agree to the contract terms

Oracle

To create a new address for the oracle:


    # Create a wallet for the oracle (to be able to sign messages)
    bitcoin-cli -regtest createwallet oracle false false ""

    # Load the oracle wallet
    bitcoin-cli -regtest loadwallet oracle

    # Get a new address for the oracle
    oracle_address=$(bitcoin-cli -regtest -rpcwallet=oracle getnewaddress -addresstype legacy)

To sign an outcome with the oracle:


    bitcoin-cli -regtest -rpcwallet=oracle signmessage $oracle_address "oracle outcome 1"

    # Verify the signature
    bitcoin-cli -regtest -rpcwallet=alice verifymessage $oracle_address "signature" "oracle outcome 1"

Creating a Contract and CETs Based on Oracle Outcome

To create a contract between Alice and Bob:


    # Alice and Bob create multisig addresses
    alice_address=$(bitcoin-cli -regtest -rpcwallet=alice getnewaddress)
    bob_address=$(bitcoin-cli -regtest -rpcwallet=bob getnewaddress)
    alice_pubkey=$(bitcoin-cli -regtest -rpcwallet=alice getaddressinfo $alice_address | jq -r '.pubkey')
    bob_pubkey=$(bitcoin-cli -regtest -rpcwallet=bob getaddressinfo $bob_address | jq -r '.pubkey')
    multisig_address=$(bitcoin-cli -regtest createmultisig 2 "[\"$alice_pubkey\", \"$bob_pubkey\"]" | jq -r '.address')

    # Alice funds the multisig address
    alice_fund_txn=$(bitcoin-cli -regtest -rpcwallet=alice sendtoaddress $multisig_address 5)
    # Bob funds the multisig address
    bob_fund_txn=$(bitcoin-cli -regtest -rpcwallet=bob sendtoaddress $multisig_address 5)
    
    

    # alice creates cet for when the outcome is 1
    cet_alice_1=$(bitcoin-cli -regtest -rpcwallet=alice createrawtransaction "[{\"txid\":\"$alice_fund_txn\",\"vout\":0}]" "{\"$alice_address\":7.5}")
    # todo: we need to create adaptor signatures
    signed_cet_alice_1=$(bitcoin-cli -regtest -rpcwallet=alice signrawtransactionwithwallet $cet_alice_1 | jq -r '.hex')
    cet_alice_0=$(bitcoin-cli -regtest -rpcwallet=alice createrawtransaction "[{\"txid\":\"$alice_fund_txn\",\"vout\":0}]" "{\"$alice_address\":2.5}")

    # bob creates cet for when the outcome is 0
    cet_bob_0=$(bitcoin-cli -regtest -rpcwallet=bob createrawtransaction "[{\"txid\":\"$bob_fund_txn\",\"vout\":0}]" "{\"$bob_address\":7.5}")
    cet_bob_1=$(bitcoin-cli -regtest -rpcwallet=bob createrawtransaction "[{\"txid\":\"$bob_fund_txn\",\"vout\":0}]" "{\"$bob_address\":2.5}")
    # todo: we need to create adaptor signatures
    signed_cet_bob_1=$(bitcoin-cli -regtest -rpcwallet=bob signrawtransactionwithwallet $cet_bob_1 | jq -r '.hex')

    # Oracle signs the outcome 
    oracle_outcome=1
    oracle_signature=$(bitcoin-cli -regtest -rpcwallet=oracle signmessage $oracle_address "$oracle_outcome")

    # Alice verify the oracle signature
    bitcoin-cli -regtest -rpcwallet=alice verifymessage $oracle_address "$oracle_signature" "$oracle_outcome"

    # Assuming the oracle signature is valid, they can broadcast the appropriate CET
    # todo: 
    bitcoin-cli -regtest sendrawtransaction $signed_cet_alice_1
    bitcoin-cli -regtest sendrawtransaction $signed_cet_bob_0

Creating adaptor signature

Challenges

createmultisig: Invalid public key: resolved by using public key instead of multisig address
signmessage: Address does not refer to key: resolved by using legacy address when calling getnewaddress
getreceivedbyaddress: Address not found in wallet (when looking for the amount received by the multisig_address):
signrawtransactionwithwallet: TX decode failed. Make sure the tx has at least one input.

References

bitcoin rpc reference