Bitcoinlightningthe coin of the future
There are a number of scenarios in which users can accidentally broadcast an older balance; for example, because of a software bug or a backup gone wrong. In such scenarios, a complete loss of channel funds is quite a heavy punishment. First published on April 30, , eltoo is the newest proposal featured in this article.
If one user broadcasts an older transaction representing an older channel balance , her counterparty has some time to broadcast the latest transaction representing the latest channel balance.
It would require that the entire chain of transactions be broadcast and recorded on the Bitcoin blockchain, more or less defeating the purpose of the Lightning Network. Decker therefore proposed a soft-fork change to the Bitcoin protocol to introduce a type of hierarchy in these types of transactions: If this soft fork is adopted and activated on the Bitcoin network, Lightning users could create channels in both the current style and by using eltoo, depending on what they prefer.
While the Lightning Network is a second-layer protocol, the Bitcoin blockchain itself is still relevant for Lightning users for security purposes.
Specifically, Lightning users must keep an eye on the blockchain to see if specific transactions are included. This can be resource intensive, in particular for mobile users. Unfortunately, Bloom filters are rather privacy-unfriendly, as wallets essentially reveal all of their addresses to nodes on the Bitcoin network. They also have some scaling and usability issues, as each individual SPV wallet takes up resources from at least one full Bitcoin node. Compact client-side block filtering essentially inverts the trick that current SPV wallets use.
Instead of wallets requesting transactions relevant to them by creating and sending out a Bloom filter to full nodes, full nodes create a filter for all Neutrino wallets. The Neutrino wallet then uses this filter to establish that the relevant transaction did not happen — which is really all that users need to know to be sure they are not being cheated.
If the filter produces a match, Neutrino fetches the relevant block to see if the match really concerns the exact transaction instead of a false positive. Interestingly, while this trick was designed with the Lightning experience in mind, it could be utilized to benefit regular light wallets as well. To avoid being cheated, Lightning users must keep track of potential on-chain transactions that could be relevant to them.
If they forget to check, it creates a security risk. As the name suggests, Watchtowers could let users outsource blockchain monitoring to third parties. Current Watchtower designs are not set in stone but would roughly work like this. Whenever users update a channel, they send a small data package to a Watchtower. However, if the relevant transaction shows up in the Bitcoin blockchain, the Watchtower can use the hint to recognize it. This penalty transaction sends all funds in the channel to the user that is being cheated.
Or in the case of eltoo, it just broadcasts the correct channel balance. The penalty transaction can also be designed to let the Watchtower claim part of the funds as a reward, as an incentive to do its job. Users can outsource channel monitoring to multiple Watchtowers. What makes the Lightning Network a network is that the payment channels between users are interconnected.
However, right now a single payment must be routed over a single route. If one user wants to pay 5 mBTC to another, not only must he have 5 mBTC in a single channel, all the middlemen on the route must also have 5 mBTC ready in a channel to forward. The bigger a payment is, the smaller the odds of this being the case.
A challenge to realize this solution is that Lightning payments can fail, which would in this case mean that a payment is made partially. Partial payments can easily be a bigger problem than no payment at all, however: The solution to this problem is that AMPs use an extension to the hash time-locked contracts , which are already used along Lightning routes and involve passing secret data along a network. Using a trick similar to the one used by deterministic wallets which generate multiple Bitcoin addresses from a single seed , the smaller pieces of a larger payment can only be redeemed by the payee if all of them are: The Lightning Network is designed as a scaling layer for Bitcoin.
Already, a small Litecoin Lightning Network exists, and more Lightning Networks are likely to follow. In other words, a user can send bitcoin, and as long as a node on the network is willing to make the exchange, another user can receive the payment as litecoin. Of course, this also means that users can send such payments to themselves: In effect, the Lightning Network could establish a network of trustless cryptocurrency exchanges.
For more information on this topic, see: How the Lightning Network Extends to Altcoins. The main benefit of the Lightning Network is arguably its potential to vastly increase the upper limit of bitcoin transactions without burdening the Bitcoin network. As long as two users both have funds in their channel, they can pay each other a virtually unlimited number of times, while only requiring two on-chain transactions: Still, two transactions per payment channel could add up if Bitcoin and the Lightning Network gain more adoption over time.
Loosely based on an earlier Lightning-like proposal by Decker and Wattenhofer from , Channel Factories are a type of payment channel that can exist among many users. Meanwhile, like any payment channel, a Channel Factory only ever requires two on-chain transactions. Instead of wallets requesting transactions relevant to them by creating and sending out a Bloom filter to full nodes, full nodes create a filter for all Neutrino wallets.
The Neutrino wallet then uses this filter to establish that the relevant transaction did not happen — which is really all that users need to know to be sure they are not being cheated. If the filter produces a match, Neutrino fetches the relevant block to see if the match really concerns the exact transaction instead of a false positive. Interestingly, while this trick was designed with the Lightning experience in mind, it could be utilized to benefit regular light wallets as well.
To avoid being cheated, Lightning users must keep track of potential on-chain transactions that could be relevant to them. If they forget to check, it creates a security risk. As the name suggests, Watchtowers could let users outsource blockchain monitoring to third parties. Current Watchtower designs are not set in stone but would roughly work like this. Whenever users update a channel, they send a small data package to a Watchtower.
However, if the relevant transaction shows up in the Bitcoin blockchain, the Watchtower can use the hint to recognize it. This penalty transaction sends all funds in the channel to the user that is being cheated. Or in the case of eltoo, it just broadcasts the correct channel balance. The penalty transaction can also be designed to let the Watchtower claim part of the funds as a reward, as an incentive to do its job.
Users can outsource channel monitoring to multiple Watchtowers. What makes the Lightning Network a network is that the payment channels between users are interconnected. However, right now a single payment must be routed over a single route. If one user wants to pay 5 mBTC to another, not only must he have 5 mBTC in a single channel, all the middlemen on the route must also have 5 mBTC ready in a channel to forward.
The bigger a payment is, the smaller the odds of this being the case. A challenge to realize this solution is that Lightning payments can fail, which would in this case mean that a payment is made partially. Partial payments can easily be a bigger problem than no payment at all, however: The solution to this problem is that AMPs use an extension to the hash time-locked contracts , which are already used along Lightning routes and involve passing secret data along a network.
Using a trick similar to the one used by deterministic wallets which generate multiple Bitcoin addresses from a single seed , the smaller pieces of a larger payment can only be redeemed by the payee if all of them are: The Lightning Network is designed as a scaling layer for Bitcoin. Already, a small Litecoin Lightning Network exists, and more Lightning Networks are likely to follow. In other words, a user can send bitcoin, and as long as a node on the network is willing to make the exchange, another user can receive the payment as litecoin.
Of course, this also means that users can send such payments to themselves: In effect, the Lightning Network could establish a network of trustless cryptocurrency exchanges. For more information on this topic, see: How the Lightning Network Extends to Altcoins.
The main benefit of the Lightning Network is arguably its potential to vastly increase the upper limit of bitcoin transactions without burdening the Bitcoin network. As long as two users both have funds in their channel, they can pay each other a virtually unlimited number of times, while only requiring two on-chain transactions: Still, two transactions per payment channel could add up if Bitcoin and the Lightning Network gain more adoption over time.
Loosely based on an earlier Lightning-like proposal by Decker and Wattenhofer from , Channel Factories are a type of payment channel that can exist among many users. Meanwhile, like any payment channel, a Channel Factory only ever requires two on-chain transactions. If Schnorr signatures are implemented on Bitcoin, these transactions could be quite compact, even if it involves many users.
Participants within a Channel Factory can open and close a virtually unlimited number of Lightning channels with each other, without requiring any additional on-chain transactions. By doing so, they could, in theory, bring the number of required on-chain transactions for the Lightning Network down by a magnitude.
About Terms of use Advertise Store Contact. All What Is Bitcoin? What Is a Blockchain? What Makes Bitcoin Valuable?
What Are Bitcoin Wallets? Is Bitcoin a Good Investment? What is Bitcoin Mining? What Is an ICO? The Future of Bitcoin: Facebook Twitter LinkedIn Email.