Discreet Log Contracts (DLCs) are a contract protocol where two or more parties agree to exchange money dependent on the outcome of a certain event as determined by an oracle (or several oracles). After the event happens, the oracle publishes a commitment to the outcome of the event that the winning party can use to claim their funds. The oracle doesn’t need to know the terms of the contract (or even that a contract was made).

The transactions creating and settling the contract can be made indistinguishable from many other Bitcoin transactions or they can be executed within an LN channel. This makes DLCs more private and efficient than other known oracle-based contract methods. Additionally, DLCs are arguably more secure than earlier oracle-based methods because an oracle that commits to a false result generates clear evidence of fraud.

The original DLC construction was specific to schnorr signatures. Later, a version was developed to use signature adaptors that are compatible with Bitcoin’s existing ECDSA signature scheme.

Note on spelling: the name is a play on the discrete log problem, which gives the protocol its security, and DLC’s enhanced privacy making the contracts more discreet. The spelling used by the idea’s original author and the DLC interoperability specification is discreet log contracts.

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