Watchtower-Free Lightning Channels For Casual Users

Summary:

John and Bastien, two Lightning Network experts, had a discussion about the trade-offs between dedicated users (DLUs) and casual users (CLUs) in terms of capital efficiency. In the current protocol, DLUs can only move liquidity by either getting CLUs to sign a cooperative close transaction or waiting for approximately 2 weeks based on the to_self_delay parameter set by the CLU. To improve this process, the Lightning Network team is considering allowing DLUs to pre-sign a splice transaction that keeps the channel open but allows them to get their balance out non-interactively, similar to splicing.However, John proposed an alternative solution where the CLU always checks in with the DLU whenever they check the blockchain. During this check-in, if the DLU wants to splice out some channel funds, they send the CLU a splice transaction which splices out some of the funds to the DLU without requiring a to_self delay. This approach has some potential advantages, including allowing the DLU to splice out funds as soon as the CLU comes online, making the use of capital more efficient, and allowing the splice transaction to pay fees based on the current fee rate, rather than a pre-calculated fee rate.Despite these benefits, John's proposal requires the CLU to stay online long enough to complete the roundtrip of sending a check-in message to the DLU, getting the splice message to sign, signing it, and sending the signature back to the DLU. It also assumes that the CLU checks the blockchain themselves, rather than using a watchtower service, and requires the DLU to decide at the time of the check-in whether or not to perform the splice. Additionally, as the blockchain becomes highly-contested and fees increase, it may no longer be worth paying the fees to put a splice transaction on-chain unless a large amount of capital is at stake for a long period of time.Bastien agrees that liquidity isn't free and DLUs must be able to quickly move liquidity from where it's unused to where it may be better used, closely watching the demand for block space and doing on-chain transactions when fees are low. He believes that John's proposal may not be acceptable for DLUs because they won't be able to quickly move liquidity around, which means they'll have to charge CLUs for the loss of expected revenue. However, he acknowledges that it's an interesting idea and is curious to see how it plays out.In another email exchange, the comparison between the Watchtower-Free (WF) protocol and non-cooperative close transaction on-chain with a 2-week delay was discussed. The WF protocol has a larger delay of about 1-3 months, but it allows the DLU to move liquidity to another Lightning channel by either getting the CLU to sign a cooperative close transaction or putting a non-cooperative close transaction on-chain. It was suggested that in case 1), the DLU should refund the remaining portion of the CLU's cost-of-capital pre-payment, as that capital is now being made available to the DLU.The only disadvantage of the WF protocol seems to be the larger delay, but the long term cost-of-capital charges are expected to be very low due to the inherently deflationary nature of bitcoin. The email also includes links to related proposals on GitHub and Peerswap.dev.

Updated on: 2023-06-03T10:11:04.874140+00:00