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Scaling Lightning With Simple Covenants

Scaling Lightning With Simple Covenants

Posted on: September 8, 2023 18:54 UTC

The email explains the challenge in scaling Lightning in a trust-free manner, specifically the creation of Lightning channels for casual users.

It suggests that signature-based factories have limitations, but simple covenants enabled by CheckTemplateVerify (CTV) or AnyPrevOut (APO) can allow a single UTXO to create Lightning channels for millions of casual users. These covenant-based protocols support resizing channels off-chain, using the same capital for liquidity and routing payments, charging penalties for old states, and allowing casual users to monitor the blockchain without a watchtower service.The scalability issue lies in providing Lightning channels to casual users because they need to co-own an on-chain UTXO to co-own a Lightning channel. Obtaining signatures from a large number of casual users is difficult. However, if the consensus rules are changed to allow simple covenants, this bottleneck can be eliminated. Simple covenants enable the creation of a covenant tree that guarantees the creation of Lightning channels for a large number of casual users without requiring their signatures. Adding a timeout-tree after which non-leaf outputs can be spent without meeting the covenant conditions enables long-term scaling.To address the problem of forcing casual users to drain their balances to a new timeout-tree before expiry, a variation of the FFO-WF Lightning channel protocol can be used. This allows the dedicated user to facilitate the rollover of the casual user's funds without requiring input from the casual user.In addition to Lightning channels, off-chain bitcoin is also important. Timeout-trees can provide casual users with immediately-accessible off-chain bitcoin. Control UTXOs can be used to rollover the casual user's bitcoin from one timeout-tree to the next without requiring any actions from the casual user.Enabling simple covenants and timeout-trees would greatly improve the scalability of Lightning and make it a widely-used means of payment. The email suggests incorporating mechanisms like CheckTemplateVerify (CTV) or AnyPrevOut (APO) in Bitcoin's consensus rules to facilitate this. The email also mentions usability properties and limitations of the protocols discussed.Overall, the email proposes using off-chain transactions and covenants to improve scalability in the Lightning Network, reducing the on-chain footprint and enabling various actions to be performed off-chain. It suggests that with the use of covenants and timeout-trees, the scalability limitations of Lightning can be overcome, making it a widely-used means of payment.