🎲 Discreet Log Contracts (DLC)🎲 Discreet Log Contracts (DLC)

DLCs allow parties to place bets directly on Bitcoin.

Let's say there are three people involved:Let's say there are three people involved:

• Alice & Bob → Contract Makers
• Olivia → Oracle

Oracle = a trusted party who provides data from the outside world.

🪙 Game Setup🪙 Game Setup

Alice & Bob bet on the outcome of a coin toss:

• Alice chooses “Heads”
• Bob chooses “Tails”

1. Contract Creation1. Contract Creation

They place their bet money in a 2-of-2 multisig (Funding Tx):

Each party sends 1 BTC.
The winner receives 2 BTC.

2. Contract Execution Transactions (CETs)2. Contract Execution Transactions (CETs)

They also create two commitment transactions, each representing a different outcome:

• CET 1: 2 BTC → “Heads” PubKey
• CET 2: 2 BTC → “Tails” PubKey

⚙️ Execution⚙️ Execution

Both CET 1 & 2 spend from the same Funding Tx.

The oracle determines that the result is “Heads.”

The oracle publishes the corresponding “Heads” signature.

Since the result is Heads:

• CET 1 is the valid transaction.
• 2 BTC go to the “Heads” PubKey.

Head_Pk = PubAlice + sheads * G

Because Alice chose “Heads,” she receives the 2 BTC.

🌐 Settlement🌐 Settlement

CET 1 is broadcast to the network,
and the winner (Alice) receives the 2 BTC.

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