Lichen: L2s In CHannels ENforced on bitcoin

The email discusses a novel approach to handling transactions on Layer 2 (L2) networks that involve co-owned contracts between a user and a single hub, without the need for trust in the hub's honesty or operational liveness. This system allows users to hold and withdraw hub tokens as bitcoin through a multi-signature setup with the hub. The core of this design ensures that if the hub fails to process a withdrawal or goes offline, the transaction can still be enforced directly on the Bitcoin blockchain. This mechanism does not necessitate any changes to Bitcoin’s consensus protocol.

The technical implementation of disputed withdrawals involves using RISC Zero to prove a withdrawal statement, wrapped within Groth16—a cryptographic proof system. In the event of a dispute about a withdrawal, BitVMX facilitates an on-chain review of the execution of a RISC-V program, specifically a Groth16 verifier, to resolve the issue. This dispute resolution process is designed to be efficient, leveraging deterministic verifiability that resolves most cases preemptively within milliseconds. However, if needed, the on-chain dispute mechanism engages in a more extensive search, potentially requiring multiple transactions to finalize.

From a practical standpoint, the proposed L2 solution emphasizes the importance of liquidity and the ability of users to receive funds, which hinges on the inbound liquidity provided by the hub. This model also entails certain risks and limitations inherent to the L2 framework itself, such as the finality of transactions and the types of operations supported by the L2 ledger. Despite these concerns, the L2 can extend beyond basic payments, supporting functionalities like high-privacy transactions similar to those in Zcash and complex smart contracts on different hubs.

Critically, while the system uses a single central hub to avoid issues like Sybil attacks and to maintain enforceable claims on the hub’s reserves, it also introduces potential vulnerabilities associated with centralization. However, each token issued by the hub is backed by actual reserve assets, ensuring their redeemability without requiring the hub's permission. This approach contrasts with multiple hub models where cross-hub token transfers could lead to imbalances and trust issues.

The concept is further elaborated in the detailed documentation and proof-of-concept available in the repository linked here: Lichen Draft Paper. This repository includes comprehensive demonstrations ranging from L2 inclusion proofs to the verification processes involving STARK and Groth16, providing a robust framework for understanding and potentially implementing this L2 configuration.