Elmo: Recursive Virtual Payment Channels for Bitcoin, by Aggelos Kiayias and Orfeas Stefanos Thyfronitis Litos

A dominant approach towards the solution of the scalability problem in blockchain systems has been the development of layer 2 protocols and specifically payment channel networks (PCNs) such as the Lightning Network (LN) over Bitcoin. Routing payments over LN requires the coordination of all path intermediaries in a multi-hop round trip that encumbers the layer 2 solution both in terms of responsiveness as well as privacy. The issue is resolved by “virtual channel” protocols that, capitalizing on a suitable setup operation, enable the two endpoints to engage as if they had a direct payment channel between them.

Apart from communication efficiency, virtual channel constructions have three natural desiderata. A virtual channel constructor is recursive if it can also be applied on pre-existing virtual channels, variadic if it can be applied on any number of pre-existing channels and symmetric if it encumbers in an egalitarian fashion all channel participants both in optimistic and pessimistic execution paths. We put forth the first Bitcoin-suitable recursive variadic virtual channel construction. Furthermore our virtual channel constructor is symmetric and offers optimal round complexity both in the optimistic and pessimistic execution paths. Our virtual channels can be implemented over Bitcoin assuming the ANYPREVOUT signature type, a feature that we prove necessary for any efficient protocol that has parties maintain a set of Bitcoin transactions in their local state. We express and prove the security of our construction in the universal composition setting.