Author: jlspc 2023-03-18 00:41:00
Published on: 2023-03-18T00:41:00+00:00
The Lightning Network (LN) can be more efficient with dynamic management of lightning channel capacity. On-chain resizing has limitations, making off-chain resizing a more viable option. However, current proposals for resizing channels off-chain are limited by the exchange of capacity within a single factory or pool. Hierarchical channels offer a solution to these limitations. They allow for flexible, off-chain resizing of channels without the limitations of exchanging capacity within a limited pool of users.Hierarchical channels are 2-party channels that have two main outputs, one per party, plus zero or more HTLC outputs. Each output from a hierarchical channel that pays to a multi-user party funds another (potentially hierarchical) channel. As a result, each output in a hierarchical channel can be viewed as the root of an off-chain tree of outputs where the leaves are owned by single users. To update a hierarchical channel, funds are offered by one party to the other party in an HTLC. Dedicated users who provide routing services to others can use hierarchical channels to resize their Lightning channels off-chain. The sum of the capacities of the two channels between C and D is unchanged, except for a slight increase due to fees. This allows for flexible, off-chain resizing of channels and supports watchtower-free casual users without stranding any channel capacity. However, there are several issues that need to be addressed with hierarchical channels, including distributing output funds to individual users at the leaves, supporting more than two users per channel, and resolving HTLC outputs according to their associated HTLCs. The Tunable-Penalty Factory protocol appears most attractive for updating the channel's state off-chain. The FFO and FFO-WF channel protocols can be extended to resolve HTLCs in hierarchical channels with more than two users. In conclusion, hierarchical channels can improve scalability, efficiency, and usability of the LN without changes to the underlying Bitcoin protocol. They could be adopted in BOLTs and implemented to improve the Lightning network. The article provides links to related research and proposals throughout.
Updated on: 2023-06-03T12:23:49.719622+00:00