State channels for blockchain scalability: capabilities, limitations, perspectives

Abstract

Proof-of-work blockchain, as originally conceived by the pseudonymous creator of the Bitcoin protocol Satoshi Nakamoto, does not scale. Three different approaches are been explored to make the blockchain scale: 1. data sharding; 2. alternative consensus mechanisms; 3. offchain solutions. This work contributes to the last approach by focusing on state channels. A state channel is a two-party ledger, unanimously updated, that resorts to the blockchain to resolve possible disputes (lack of unanimous consensus) that may arise during the off-chain interaction between channel endpoints. Transactions stored in the twoparty ledger are unloaded from the underling public blockchain where only a succinct summary of the off-chain interaction is finally stored. This work focuses on state channels defined by means of smart contracts supported by a Turing-complete language (as offered for example by the Ethereum platform) and presents five main contributions: 1. the definition of the propose/accept scheme as a formalization of the off-chain interaction between channel endpoints; 2. the introduction of Inextinguishable Payment Channels, a protocol to allow hot-refill of and hot-withdrawal from a running payment channel thus preventing a skewed channel to be closed if involved parties still need to use it; 3. the introduction of Fulgur, a hybrid trustless wallet supported by a FulguHub, a centralized trustless payment hub; 4. the definition of and agreement classes, a categorization that reflects the inherent characteristic of an agreement (implemented as a smart contract or as a state channel) to be resolved at any time with or without satisfaction for involved parties; 5. the introduction of Smart Channel, a protocol that equalizes performance (in terms of number of required transactions) between -agreements implemented as state channels and standard on-chain interaction (i.e., directly intermediated by a smart contract), in case of irrational attacks, and maintains privacy for involved parties in case of perfect cooperation.