An important security innovation, named “Watchtower,” will soon be activated on the Bitcoin Lightning Network (LN), a second-layer scaling solution using an alternative form of consensus than that used on Bitcoin’s base layer. The upgrade will be added to the 0.7 version of LN software (current version 0.6.1 beta).
Watchtower observers are a novel method of plugging one of the LN’s most glaring security security flaws: the general requirement for both transacting parties to be online when a Lightning channel is closed and settled on the main Bitcoin chain, to ensure that the correct amounts are written in stone - as it were - on the main chain.
To get around this problem, watchtower nodes essentially keep an encrypted record of all transactions. When it is time to settle the channel and broadcast a new ledger to the main chain, if the broadcast results don’t match up with the encrypted results, the watchtower record can be decrypted and the correct amounts can be broadcast to the correct users.
Considering that watchtowers will help ensure this alternative method method of consensus, they open up the path for a new stream of revenue on the LN; users may eventually pay Watchtower nodes for their security service in much the same way they currently pay fees to miners to process transactions.
Obviously, all of this follow-up checking is a far cry from Bitcoin’s base layer protocol, which is pretty close to impossible to cheat but also far slower than Lightning’s second layer architecture.
Still Early Days(?)
CryptoGlobe reported a few days ago that usage of the LN has dropped off sharply of late, because an especially large channel operator, “LNBig,” accidentally closed all of his LN channels due to a script error.
This closure shut down about 13% of the entire LN in one fell swoop. Such volatile disruptions exacerbate what critics see as a centralizing aspect of the Network that shouldn’t be built into Bitcoin to begin with. (Such issues were and remain at the heart of Bitcoin’s scaling debate, which spawned the Bitcoin Cash fork.)
LNBig also pointed the “paradoxical” nature of the accident, in that while some users criticize what they say is a centralizing tendency of the LN, others scolded him for the closure which took much of the Network offline so quickly.