"Eltoo" proposed by Blockstream for Lightning Network would change the Bitcoin protocol

The developers of Blockstream, Christian Decker and Rusty Russell, along with Olaoluwa Osuntokun, of Lightning Labs, published a research paper presenting a protocol improvement for Lightning Network called E ltoo on April 30. It proposes a different way of establishing payment channels in Lightning, and, in particular, requires a soft fork for the Bitcoin Core protocol.

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With Lightning Network, users can make transactions through so-called payment channels. These channels allow the parties to make an unlimited number of transactions between them during a specific period of time, without transmitting them to the chain of Bitcoin blocks. When the parties finish, they close the channel, transmitting the final updated status of the channel balance to the main chain.

Eltoo seeks to prevent losses due to Lightning errors

But what happens if a Lightning user tries to cheat his counterpart by transmitting an outdated channel balance that would pay him more than he should? Lightning resolves this by penalizing users who try to cheat by giving the other party all the funds they have open in the channel.

However, this penalty system has one drawback: a party can send an obsolete payment channel balance not because of fraud, but because of a software error or data backup problems. In such a situation, without the intention to defraud, an innocent party may lose the entire balance of its channel.

This is where Eltoo comes in. Continuously updates the balances of the payment channels by recording all the transactions and then, at the time of the settlement, allows the intermediate states to be omitted so that only the last settlement transaction is confirmed to the block chain. If one party attempts to cheat by presenting an out-of-date transaction during the settlement, the other party has time to transmit the latest transactions and thus ensure the accuracy of the channel balance.

However, for Eltoo to work in the Bitcoin network, a change in the protocol is necessary: ​​the introduction of the SIGHASH_NOINPUT flag for signatures. This could be done through a soft fork, and the authors of the document included a proposal to do so.

The question of scale

Of course, not everyone agrees that Eltoo is necessary or that Lightning Network represents the best way to solve the scaling problem faced by Bitcoin (and all other block chains). The problem led to the contentious hard fork of last year and the creation of Bitcoin Cash (BCH). There are many arguments that Bitcoin Cash supporters make when arguing against Layer Two solutions.

First, critics of Lightning Network believe that it is preferable to scale in chain through block size, emulating Satoshi himself. Although Satoshi created the block size limit of 1 MB, he wrote about how it would be possible to increase it.

They also argue that PoW mining is the best way to secure the network, and that anything less would lose resistance to censorship, an essential attribute of Bitcoin.

Secondly, detractors say that Lightning Network is destined to be centralized to a certain extent, with predictions of "supernodes" that would have undue influence on the network, such as requiring the identification of users to comply with KYC / AML laws.

There is also a fear that the Lightning Network nodes will be forced to register as money transmitters in the United States and possibly in other jurisdictions.

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Finally, some see companies as Blockstream as a co-option of Bitcoin for their own benefit (and possibly that of exchanges). Journalist Laura Shin reported that Blockstream "plans to sell side chains to companies, charging a fixed monthly fee, transaction fees and even selling hardware."

No end in sight in the scale debate

Those in favor of larger blocks say that the goal of maintaining the size of the Bitcoin block (or block weight) is to create a problem for which Layer 2 protocols are the solution.

Most of the anonymous publications can be found on Internet forums about the alleged conflict of interests that Blockstream has between its own business model and the good of the Bitcoin network.

While there is much rhetoric from both sides, the reality is that Lightning Network is still in its infancy (it was launched on the mainnet on March 15) and that both Bitcoin and Bitcoin Cash currently have relatively low rates. Bitcoin Cash has already increased the size of the block to 8MB during the hard fork of August, and plans to quadruple it to 32MB and add other protocol changes this year.