In the Ark protocol, a large number of users trustlessly share onchain UTXOs using trees of pre-signed, offchain transactions. By sharing UTXOs and transacting offchain, Ark users can spread the cost of onchain fees across multiple participants, minimizing individual transaction costs while maintaining self-custody of their bitcoin.

Ark transaction trees are constructed periodically through an interactive process known as “rounds”. Each round involves multiple users and a counterparty (an Ark operator), who together construct and sign the transaction tree, then broadcast the root transaction onchain. Users securely store their branch and leaf transactions offchain. This package of offchain transactions is known as a VTXO (virtual UTXO), which serves as the core unit of value on Ark.

To unilaterally withdraw bitcoin from Ark, a user broadcasts their branch and leaf transactions in sequence, ultimately releasing their portion of the shared UTXO to an onchain output under their sole control. However, under normal operations, users will typically prefer cooperative exits, where they spend their VTXO to receive an onchain UTXO from the Ark operator.

VTXOs “expire” according to an absolute timelock. After this timelock expires, both the Ark operator and users can unilaterally spend the bitcoin. To maintain trustlessness, users must ensure their VTXOs are spent into a new transaction tree before expiry. This expiry mechanism allows the Ark operator to efficiently recover liquidity that has been allocated to previous rounds and external spending operations.

Payments between Ark users are handled as offchain, pre-signed extensions of the transaction tree. Each payment transaction requires co-signatures from both the sender and the Ark operator, meaning receivers must trust that the sender will not collude with the operator to double-spend.

Users can chain these payments by spending a received VTXO before it’s included in a new round. In payment chains, any sender in the chain could collude with the operator to double-spend the entire chain.

Upon receiving a VTXO, users can either roll it into a new round to regain trustlessness, or spend it to another user before the expiry deadline.

Ark can be implemented on Bitcoin without requiring consensus changes, but would support significantly more users—and achieve greater fee efficiency—if covenant features like OP_CHECKTEMPLATEVERIFY were added to Bitcoin.

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