We previously released a blog post about payment channels and their usability within the context of an off-chain payment network.
In this blog post we will introduce the advantages and contributions of the concept we have been working hard to develop for the past few months, secure off-chain n-party payment hubs. We will discuss the improvements we have managed to make in our design, leaving the technical details behind our protocol to an upcoming technical write up.
Payment-channel networks so far
The two most well known implementations of payment channels are the Lightning, and Raiden networks, for Bitcoin and Ethereum, respectively. Both networks have had a substantial amount of development invested into them so far, with the Lightning network deploying a bidirectional payment channel network on the Bitcoin testnet, and Raiden deploying a unidirectional payment channel, µRaiden, on the main Ethereum network.
The Liquidty.Network is the realization of a new n-party payment hub protocol that aims to address the business and usability challenges faced in off-chain payment networks, while creating an open decentralized marketplace for payment processing services.
Payment service providers that would wish to utilize off-chain payment channels to create a functional service for routing payments would have to allocate, in-advance, to each of its clients, an amount of collateral equal to the amount expected to be received by those clients. We discussed this problem in more detail in a previous blog post and our talk at the CryptoValley meetup also discusses this issue.
Our N-party payment hubs, on the other hand, allow a hub operator to securely transfer funds between its participants without the need for collateral allocation by the operator. This gives Liquidity.Network hubs the freedom from locking up an insurmountable amount of funds to ensue with safe operation, and adds a high degree of liquidity to the funds dedicated by a user to cover off-chain payments. Users can now lock up an amount of funds that is directly spendable towards any participant in the hub, rather than only towards a single counterparty in a payment channel.
Inter-hub payments would require payment routing mechanisms similar to those in payment-channel networks, but with a much lower degree of complexity and cost.
One of the convenient features present in our design is the complete absence of an on-chain registration requirement when entering a payment hub. A user with absolutely zero balance in their on-chain wallet may opt to register with an off-chain hub at no cost, and start receiving instantly spendable payments into their off-chain wallet.
Blockchains currently exhibit a relatively limited amount of transaction bandwidth. We had previously mentioned the proneness of a payment channel based hub towards failure under blockchain congestion. Our hub protocol is designed towards a higher degree of confidence in ledger consistency and graceful failure under congestion, a design pattern we hope to see adopted in all other 2nd layer scaling solutions in the future as an improvement to their time constrained responsive security measures.
Any party with a stake in an on-chain payment channel is required to remain online to ensure that the channel counter-party does not attempt to terminate the channel with an outdated state that would wrongly grant more funds than originally due. Requiring a persistent online presence from end users is unrealistic and unreliable. We designed our protocol with significantly less online presence requirements on hub participants.
Some payment channel designs build their safety rationale around a punishment mechanism which ensures strict punishment of misbehaving parties. From a risk analysis perspective, this makes the impact of a payment-channel hub’s credentials being leaked quite severe. Liquidity.Network hubs were designed with more practical failsafe termination measures in mind built towards gracefully ensuring ledger consistency in case of failure rather than irreversible chaos.
The Liquidity.Network aims to create a practical solution that can be used to safely scale off-blockchain payment processing. Expect to hear more news from us as we closely approach our planned token pre-sale and testnet launch!