New Bitcoin Lightning Network Vulnerability Exposed: The Replacement Cycling Attack

blockchain.news:

A recent revelation on the Lightning Network vulnerability known as a “replacement cycling attack” has prompted notable security researcher and developer, Antoine Riard, to step down from his role on the Lightning Network development team. The disclosure of this attack came to light through a detailed thread shared on Twitter by a developer known as mononaut, on 21st October 2023. This attack exploits a particular mechanism within the Lightning Network’s transaction process, causing potential financial loss to users engaged in a channel.

The Mechanism Behind the Attack

The Lightning Network operates as a second layer on top of the Bitcoin blockchain, with the primary goal of scaling the Bitcoin (BTC) transaction capability by facilitating off-chain, peer-to-peer transactions. Users can establish payment channels within the network, execute multiple transactions off-chain, and then record the aggregate transaction on the Bitcoin blockchain upon completion. The core of this attack lies in the manipulation of the Hash/Time Lock Contract (HTLC) outputs, which are essential for securing transactions while they are routed through the network.

The attack unfolds in a multi-step process. Initially, when a payment is being routed through a user, say Bob, from Alice to Carol, the payment is safeguarded by HTLC outputs in Bob's pre-signed channel commitments with each peer. A crucial feature of this setup is the timelock mechanism, which ensures that the outgoing HTLC to Carol expires before the incoming HTLC from Alice, providing Bob a window to react in case of any issues.

The attacker’s objective is to exploit this mechanism by forcing Bob to time-out the transaction on-chain when Carol fails to reveal the payment preimage