Bitcoin Lightning Network could receive an improved privacy

  • Nadav Kohen has proposed an update to replace part of the Bitcoin Lightning network to increase its privacy and security.
  • The proposed changes, if implemented, would be the largest update the Lightning network has received to date.

The Bitcoin Lightning Network is one of the most promising projects in crypto space. Designed to increase the speed of transactions, the scalability and reduce network fees, the development of the Lightning Network still faces important challenges. As has now become public, the developer Nadav Kohen is working on an update to replace one of the parts of the network, the Hashed Timelock Contracts (HTLCs) by the Point Timelock Contracts (PTLCs). The upgrade could open the door to an overall improvement in network performance that finally meets the users’ expectations.

The Lightning network is a layer-2 payment protocol that allows fast transactions with low rates processed off-chain. Composed currently of about 12,000 nodes, users utilizing the Lightning Network (LN) have to open “payment channels” to send and receive Bitcoin. For the processing of transactions, the network is currently using HTLCs. These are, according to Kohen:

(…) contracts for conditional payment that say (A) will send (B) the specified bitcoin if (B) reveals the pre-image to a specified hash. Otherwise (A) gets her bitcoin back after some specified time.

These contracts use a unified payment hash which, although they allow the network to function, present a privacy problem. This is because, as Kohen states, all payments on any given node can be tracked by its hash. Therefore, HTLCs are a component that reduces privacy on the LN and leaves the network susceptible to attacks jeopardizing users’ information and even their BTC.

A research published in February has confirmed that Bitcoin’s LN and Ethereum’s Raiden consist of components that make them unprivate and unsafe. The research pointed out that most transactions on the Lightning network are not truly private because most payments are executed through single-hop paths.

Solving the privacy problem on Bitcoin’s Lightning Network

PTLCs are a solution to the problem of privacy and security in the LN, as Kohen says. They are a mechanism that would replace pre-images with scalars and payment points. Kohen explains the solution as follows:

This scheme generalizes to an arbitrary number of hops by using a new random number for each hop. Thus every hop uses a completely different condition (since a random number is added each time) so we now have payment decorrelation!

Other benefits of PTLCs, besides the increase in privacy, include the possibility of implementing applications such as: Unrestricted payments (retractable) with proof of payment, escrow agreements on the LN, pay for signature and pay for commitment, among many others. However, the changes posed by this solution are extensive and as the CTO of Lightning Labs, Olaoluwa Osuntokun, said:

(…) this would to date be the largest network-level update undertaken to the Lightning Network thus far.

About Author

Reynaldo Marquez has closely followed the growth of Bitcoin and blockchain technology since 2016. He has since worked as a columnist on crypto coins covering advances, falls and rises in the market, bifurcations and developments. He believes that crypto coins and blockchain technology will have a great positive impact on people's lives.

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