DLC Dev Kit

What are DLCs?

DLC stands for Discreet Logarithm Contracts
They are a privacy-preserving way to use a type of bitcoin smart contract called an Oracle
Oracles are third party services that “report” data about the real world (e.g. sports games) in a format that bitcoin transactions can understand
You can use Oracles to bet on real-world events, e.g. Alice pays Bob 5000 sats if Argentina wins the world cup, otherwise Bob pays Alice 5000 sats
Discreet means “private” but it’s also a pun on the term “Discrete Logarithm”
“Discrete Logarithms” are the branch of mathematics dealing with public key cryptography, upon which bitcoin is based

A DLC Oracle announces that it will reveal a “secret key” if a real-world event occurs, and its announcement also contains something called a “commitment key,” which is derived from the secret key
Alice creates a signed bitcoin transaction that pays Bob 5000 sats, and she essentially “encrypts” the signature for this transaction to the DLC’s commitment key
Bob knows that if he learns the secret key, he can “decrypt” the signature and take the money
DLCs use a property of discrete logarithms to prove that the signature will be valid for the transaction that pays Bob if Bob manages to decrypt it
Thus Bob will only get paid if the real-world event he is betting on happens – assuming the Oracle is honest

DLC oracles never need to interact with their users
They can simply publish announcements on a blog (e.g. “On January 3 I will reveal a secret if Satoshi Nakamoto won the U.S. presidential election. The commitment key is XYZ.” and “Ok it’s January 3rd and Satoshi DID win so here is the secret: ABC.”)
Bitcoin transactions locked to DLC secrets don’t look different from “regular” bitcoin transactions – ideally, the Oracle never learns that anyone used the information they posted
The only way the Oracle learns that someone used their services is if one of their users tells them
Warning: it is possible for a DLC to “cheat” by colluding with Alice or Bob to always reveal the secret that sends the money to that person

A bitcoin dev named Benny Hodl launched DLC Dev Kit
It is a software suite for building DLC applications
It also includes advice and best practices
He has example code for creating a DLC contract
Devs can use this code as a starting point and read his suggestions for how to finish their app
He suggests using Nostr as a communication layer for Oracle announcements and for discovering other people who want to bet on stuff
The dev kit does not include code for that part yet but Benny says he will release some example apps soon