Fundamental Properties of the Layer Below a Payment Channel Network (Extended Version)

TL;DR

This paper introduces a formal model for the foundational layer beneath payment channel networks, demonstrating its applicability to blockchains and trusted third parties, and exploring implications for scalability and efficiency.

Contribution

It formalizes the RFL Model as a minimal first layer for payment channels, broadening the design options beyond blockchains and enabling optimizations.

Findings

The RFL Model suffices for implementing payment channels.

The RFL Model can be instantiated by blockchains and trusted third parties.

Stronger blockchain properties enable collateral locking optimizations.

Abstract

Payment channel networks are a highly discussed approach for improving scalability of cryptocurrencies such as Bitcoin. As they allow processing transactions off-chain, payment channel networks are referred to as second layer technology, while the blockchain is the first layer. We uncouple payment channel networks from blockchains and look at them as first-class citizens. This brings up the question what model payment channel networks require as first layer. In response, we formalize a model (called RFL Model) for a first layer below a payment channel network. While transactions are globally made available by a blockchain, the RFL Model only provides the reduced property that a transaction is delivered to the users being affected by a transaction. We show that the reduced model's properties still suffice to implement payment channels. By showing that the RFL Model can not only be instantiated by the Bitcoin blockchain but also by trusted third parties like banks, we show that the reduction widens the design space for the first layer. Further, we show that the stronger property provided by blockchains allows for optimizations that can be used to reduce the time for locking collateral during payments over multiple hops in a payment channel network.