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One of the greatest fundamental restrictions to the Lightning Network is the restricted variety of channels that can be opened or closed per block offered the blocksize limitation. Regardless of the number of deals can take place off-chain how inexpensively, this is a basic traffic jam limiting the number of individuals might really reasonably utilize the Lightning Network. Even the Lightning Network whitepaper went through in the conclusion that in a circumstance where the whole world’s population of 7 billion was utilizing Lightning, with just 2 on-chain deals a year per individual, Bitcoin would need 133 MB obstructs for Lightning to work. This isn’t some out of left field issue, or unforeseeable concern, it was a constraint of the procedure style completely comprehended from the first day.

Part of the strategy to resolve this concern has actually constantly been the concept of channel factories, i.e. a kind of channel that more than 2 users took part in. This was constantly the instructions things would need to go in order to scale Lightning and Bitcoin without a blocksize boost, however the concern is that resolving the issue of on-chain footprints presents an entire host of other issues. First of all, absolutely nothing basic modifications about the requirement to implement intermediate states if a counterparty ends up being non-responsive. This has ramifications for the value-add. The whole point of a channel factory is that, for instance, twenty individuals can share one UTXO and reorganize the liquidity inside with the other twenty individuals nevertheless they desire. Once somebody liquidates on-chain non-cooperatively this begins to hinder that objective.

If I liquidate my channel inside a channel factory, I drag a lot of individuals with me out of the factory. Think of a factory like a merkle tree, there’s one UTXO at the top, which divides in half off-chain, and those divided in half, and so on. up until we get to everybody’s specific channels. Once I peel my channel out of the factory, everybody on my side of each split that goes on-chain is now cut off from everybody else in the factory. They can no longer rearrange their liquidity into that part of the group if everybody works together.

Another huge concern is that even to begin one you require to have everybody online at the starting to pre-sign all the deals. If you desire twenty individuals in a factory, everybody requires to be online to begin it. If you desire a thousand individuals, a thousand individuals require to be online, and so on.

This makes channel factories a huge style area loaded with great deals of issues to fix. So we fix an existing issue for Lightning, however make a lot of brand-new ones. Sounds like engineering to me.

Timeout Trees

John Law’s current proposition, Timeout Trees, tries to provide a solution to the one core concern of channel factories. I would not rather call a timeout tree a channel factory, more of a “proto-factory,” however it provides a possible solution to the concern of opening and closing enormous quantities of channels without presenting the issue of non-cooperative closes destroying using the factory for other users. It needs CHECKTEMPLATEVERIFY (CTV) and a Lighting Service Provider (LSP) in order to work functionally.

A Timeout Tree is basically a channel factory ensured by covenants, without any capability to alter how the liquidity is rearranged off-chain after it is made, with an unique escape provision. An LSP, we’ll call them Bob, plays the function of bridging casual users into the broader Lightning Network. Bob can take coins he manages and produce a CTV tree that develops a single UTXO unfurling to open channels to any approximate variety of users of his LSP service. The great aspect of CTV is it allows this to be done without everybody being online at the exact same time. Bob can merely get everybody to sign their preliminary channel state one at a time and keep them up until everybody has actually established the channel, and simply invest the funds into the CTV tree when he has actually channels established with every user.

This addresses the issue of everybody needing to be online at the exact same time in order to establish the “factory” and begin utilizing Lightning. Because of CTV, as soon as Bob invests coins into the tree establishing everybody’s Lightning channels, there is no chance for him to back out and take the coins (yet). With that initially UTXO in the CTV verified on-chain, everybody can treat their channels as open and there is no danger of them being doublespent.

Now the tail end, closing the channels. Even though opening them just needs a single UTXO on-chain due to the fact that of CTV, closing them still would need the whole CTV tree to unfurl on-chain so everybody can send their channel states, right? Wrong. This is the Timeout part of Timeout Trees. Every branch in the Timeout Tree has a script branch where Bob can sweep all of the funds after a timelock.

A diagram of a Timeout Tree.

Now I’m sure you’re believing “what!?” This is the genuine genius of how this proposition works. Because Bob can sweep the on-chain UTXOs himself without anybody else after the timelock, these channels all have an expiration date unless users really unfurl the entire tree and validate the genuine channel financing on-chain. This enables Bob to do something cool: when that timelock is showing up, he can open a brand name brand-new Timeout Tree with all the users of the existing one, and have them move all of their funds from the ending tree into the brand-new one completely off-chain on Lightning and after that sweep the single on-chain UTXO of the last tree.

This enables effective closing of all these channels on-chain. The just issue left now is imposing an HTLC on-chain if the other celebration stops working together. Well…that isn’t actually a problem in this case, or rather it’s an all or absolutely nothing concern. The factor channels need to be closed to implement an HTLC is if the other celebration of the channel stops reacting in the middle of routing it. In a Timeout Tree every user’s equivalent is Bob. So if Bob, as long as he is being sincere, is not reacting to upgrade a stopped working or effective HTLC for one user, he’s not reacting for any other user either. In that case everybody can still liquidate their channels on-chain before the timeout and stop utilizing Bob’s LSP.

Wrapping Up

Users will still need to pay costs for on-chain interactions, there is no chance around that, and a whole Timeout Tree liquidating on-chain non-cooperatively would be a big and pricey on-chain footprint, however this is eventually a problem any multiparty channel system will need to resolve. Timeout Trees nevertheless does have engaging services to the cooperative case of both opening and closing a huge multiparty channel without breaking down the trust design of the system to something custodial.

John has even in his latest variation of the paper proposed a plan where users might be punished for non-cooperative closures enough to cover Bob’s expense for ultimately sweeping a lot of fragmented tree UTXOs after the timeout. Potentially there are methods to do the reverse if Bob’s lack of exercise or dishonesty is the cause for users needing to non-cooperatively close their part of the tree.

At completion of the day however, this is an extremely concrete and particular proposition for a channel factory style that really tries to resolve the genuine problems of usage and execution rather of a half-defined and unclear principle. That is enormous development in regards to resolving Lightning’s long-lasting scaling restrictions. 

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