Scalability represents the main problem hindering mass adoption of bitcoin. To boost the rate and speed of transactions across bitcoin’s blockchain, various networks of micropayment channels have been proposed, yet such channels require locking funds into certain channels. On the other hand, the space available on the blockchain does not permit scaling, at least for now, to a payment system that is efficient on a global scale.

A recently published paper proposed a novel layer that intervenes between the blockchain and micropayment channels. This innovative layer can improve bitcoin network’s scalability issues via permiting trustless off-blockchain channel funding. This layer is comprised of shared accounts of specific groups of nodes across the network that resiliently create one-to-one payment channels for the entire network. This innovative system promotes rapid modification of funds allocated to payment channels and this markedly reduces the fees needed for creating new channels. Instead of having to have a single blockchain transaction for each payment channel, every user will only have to create only one transaction to enter the group of nodes associated with the payment channels; within this group the user can create a limitless number of payment channels.

 

Design of the Proposed System – Channel Factories:

The system introduces a novel layer between the blockchain on one side and the payment network on the other, yielding a three layered system. The first layer involves locked funds that are owned by a specific group of nodes. The second layer is comprised of multi-party micropayment channels, that are also known as channel factories, and can fund regular two party payment channels. The resulting network gives rise to the third layer, where regular micropayments of cryptocurrencies are executed. Multiparty channels are implemented with punishments or timelocks for dishonest users. The implementation of the new system, that deploys timelocks, has proven to be even more efficient than traditional multiparty channels.

The proposed system markedly reduces the cost of micropayments as shown by the experiments conducted by the developers. For example, given a group of 20 users who are engaged in 100 intra-group payment channels, the cost of transactions is reduced by 90%, when compared to executing 100 traditional micropayments via payment channels created on the blockchain. This can be even further increased to a 96% decline in costs if Schnorr signatures are utilized with signature aggregation.

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