{"id":409,"date":"2016-04-25T15:00:49","date_gmt":"2016-04-25T14:00:49","guid":{"rendered":"https:\/\/blogs.ncl.ac.uk\/security\/?p=409"},"modified":"2016-04-25T15:03:28","modified_gmt":"2016-04-25T14:03:28","slug":"towards-bitcoin-payment-networks","status":"publish","type":"post","link":"https:\/\/blogs.ncl.ac.uk\/security\/2016\/04\/25\/towards-bitcoin-payment-networks\/","title":{"rendered":"Towards Bitcoin Payment Networks"},"content":{"rendered":"

The Newcastle University Bitcoin group was invited by the\u00a021st Australasian Conference on Information Security and Privacy (ACISP 2016<\/a>)<\/a>\u00a0to write a paper about Bitcoin security.<\/p>\n

Instead, in collaboration with Malte M\u00f6ser from the University of M\u00fcnster, we decided to summarise an upcoming field in Bitcoin. We call this field `Bitcoin Payment Networks\u2019 and we hope\u00a0that our paper<\/a>\u00a0will inspire other researchers to think about how to construct payment channels, how bitcoins can be routed across two or more channels using an overlay payment network, and what potential regulation (if any) is required if anyone can participate in routing payments?<\/p>\n

Now, I am sure you are thinking:<\/p>\n

I thought Bitcoin already supported payments?<\/em><\/p>\n

What is a payment channel?<\/em><\/p>\n

And why do we need an overlay payment network for that matter?<\/em><\/p>\n

Yes, Bitcoin is a peer to peer electronic cash system, and yes, Bitcoin already has a peer to peer network.<\/p>\n

Unfortunately, Bitcoin as deployed today does not scale. The currency can support approximately 2-3 transactions per second and this is primarily due to an artificial cap of 1 MB blocks. Simply lifting the cap can alleviate the scalability problems in the short term, but\u00a0recent research at the 3rd Bitcoin Workshop<\/a>\u00a0demonstrates that the underlying peer to peer network can only handle up to 27 tps. As well, lifting the cap and re-parameterizing Bitcoin is arguably just kicking the can down the road.<\/p>\n

So how do we solve this problem? Research has focused in two directions:<\/p>\n

    \n
  1. New types of Blockchain protocols such as GHOST <\/a>and Bitcoin-NG<\/a>,<\/li>\n
  2. Facilitating\u00a0Bitcoin transactions `off-chain’ and only using the Blockchain if an adjudicator is required.<\/li>\n<\/ol>\n

    In our paper,<\/a>\u00a0we focus on the second approach that requires a payment channel that facilitates bi-directional payments. These channels can be\u00a0established when one or both parties deposit bitcoins into a multi-signature address controlled by both parties. Sending a payment then requires the authorisation of both parties, and essentially re-allocates the channel’s bitcoins to both parties. For example, if the channel has 1 BTC, then 0.5 BTC can be sent to Alice and 0.5 sent to Bob. If Alice sends 0.1 BTC to Bob, then the channel is updated to send 0.4 BTC to Alice, and 0.6 BTC to Bob. To close the channel, both parties can cooperate and settle using a single transaction, or when cooperation is not possible, either party can raise a dispute (requiring two or more transactions) on the Blockchain to settle the final balance.<\/p>\n

    Why are these channels useful?<\/p>\n