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A standard chant from many on this area lately in response to any dialogue of modifications to the Bitcoin protocol is “Don’t mess with Layer 1! You may simply construct it on Layer 2!” This looks like a really logical factor to do, proper? Why threat the safety and stability of L1 when you may simply construct on high of it? The issue is that this basically fails to grasp the connection between Layer 1 and Layer 2.
An L2 protocol is an extension of the L1. Every thing that an L2 is designed to do should in the end scale back right down to what the L1 is able to. The blanket assertion of “simply do it on L2!” obfuscates quite a few implicit realities of what can or can’t be achieved on an L2 given the present state of the bottom layer. For example, think about making an attempt to construct the Lightning Community with out the existence of multisignature scripts. You couldn’t. It wouldn’t be doable to share management between a couple of individual, and the entire idea of a cost channel wouldn’t be doable.
The Evolution of Fee Channels
Your entire cause that cost channels can exist within the first place is due to the truth that L1 of Bitcoin helps the flexibility for a number of folks to share management of a UTXO with a multisig script. What is feasible on a L2 is inherently constrained by what is feasible on L1; sure, in fact it’s doable to do issues on L2 that aren’t doable on L1, however the in the end limiting issue of what you are able to do off-chain is what is feasible on-chain. Quicker cost affirmation in a cost channel is simply doable as a result of on-chain custody will be shared between a number of folks.
Even that isn’t sufficient for a protected cost channel although. The unique cost channel had a pre-signed transaction utilizing an nLocktime timelock that provides the funder their a refund after so many blocks, and solely supported cost channels in a single path. Transaction malleability made these unique cost channels unsafe to make use of. If the funding transaction was malleated by somebody earlier than confirming, then the refund transaction would turn into invalidated and the funder would haven’t any option to declare their a refund. The opposite social gathering within the channel might successfully maintain their cash hostage.
CHECKLOCKTIMEVERIFY, absolutely the timelock opcode, was the answer. CLTV means that you can make a coin unspendable till a sure blockheight or time sooner or later. This, together with the flexibility to make scripts that may be spent in a number of methods, allowed the multisig UTXO to have a script path the place the funder might spend the entire funds themselves after a timelock. This assured the funder would be capable of declare the cash again in a worst case state of affairs even when the funding transaction was malleated. The channel might nonetheless solely facilitate one-way funds although.
To be able to facilitate two-way funds, a correct resolution to transaction malleability was vital. This was an enormous motivator for Segregated Witness. A timelock is all that was vital for a a method channel as a result of the cash solely elevated in a single path. The one threat to the sender was that the opposite social gathering would by no means declare what they’ve already been despatched on-chain, leaving the remainder of the sender’s cash trapped. The timelock refund each gave the receiver the inducement to assert funds on-chain earlier than the timelock, once they would lose all of the funds that they had already been despatched, and the sender a worst-case recourse in case one thing occurred to completely knock the receiver offline. Script doesn’t assist implementing sure quantities to sure future scripts, so a pre-signed transaction is the one viable preliminary refund mechanism if funds are to circulation in each instructions. This reopened the danger of funds being held hostage.
With the improve to Segwit, this downside was solved. Instead of the timelock refund incentivizing sincere habits, the penalty key was launched. As a result of the funds in a two-way channel can circulation backwards and forwards in every path there’ll inevitably be a case the place either side had more cash in a previous state of the channel than the present one. By establishing a department in every channel state’s pre-signed transaction utilizing a penalty key, customers can alternate these after signing the brand new state and know if the opposite social gathering tries to make use of an outdated transaction they’ll declare 100% of the funds within the channel. Timelocks are used to ensure the traditional spending path the place customers take their respective balances isn’t legitimate for a time to present channel events the prospect to make use of the penalty key if vital. There’s an issue with this although, utilizing CLTV implies that sooner or later sooner or later the channel has to shut or else the timelock will expire and also you not have that security interval to penalize the dishonest social gathering.
Bi-directional cost channels additionally wanted CHECKSEQUENCEVERIFY, or relative timelocks, with a view to resolve this subject. In contrast to CLTV, which specifies a selected time or blockheight sooner or later, CSV specifies a relative size of time or variety of blocks from the time or block that the UTXO utilizing CSV within the script is confirmed within the blockchain. This allowed the protection interval to perform for penalty key use with out requiring channels having to shut on-chain at a pre-decided time.
Even this doesn’t give us the Lightning Community although. There’s nonetheless no option to really route a cost throughout a number of cost channels. They will conduct funds in each instructions, however solely between the 2 folks concerned within the channel. To be able to route funds throughout a number of channels you want, you guessed it, different performance from the L1. Hash Time Locked Contracts are how that is completed, they usually require each CLTV in addition to hashlocks. Hashlocks require offering the preimage to a hash with a view to spend the cash. It’s like a signature, besides you really simply reveal the “non-public key” as a substitute of signing with it. This enables the receiver in a Lightning cost to offer a hashlock, and each intermediate channel between sender and receiver create a script that permits spending instantly with the hash preimage, or refunding the cash backwards after a timelock. If the receiver reveals the hashlock, everybody can declare the cash for forwarding the cost, if not, then the cash will be claimed backwards and reversed with out finalizing it.
So the Lightning Community because it exists right this moment relies upon completely on 5 functionalities being doable on the bottom layer of Bitcoin. Multisignature scripts, absolute timelocks, relative timelocks, Segregated Witness, and hashlocks. With none one among these options current on L1, Lightning as we all know it right this moment wouldn’t be a doable L2 we might assemble. Its existence as an L2 is completely depending on L1’s functionality to do sure issues. So if one had been to, in a world with a Bitcoin that didn’t assist hashlocks, timelocks in script, and no malleability repair, merely go “Simply construct a bidirectional multi-hop cost channel system on Layer 2! We shouldn’t be messing round with Layer 1” it might be a very incoherent assertion.
The Catch
That mentioned, strictly technically talking, it nonetheless would have been doable to construct that bidirectional multi-hop cost channel system in that world with out these three options on L1. At a huge value by way of introducing belief in different folks to not steal your cash when they’re able to doing so. A federated sidechain. Everybody might have simply arrange a federated chain like Liquid or Rootstock and added these options to the sidechain, constructing the Lightning Community there as a substitute of on the mainchain. The issue with that’s, it’s not the identical factor. On a technical stage the community would perform precisely the identical, however nobody utilizing it might even have the identical diploma of management over their cash.
After they closed out a Lightning channel it might decide on a sidechain backed by a federation, i.e. it might simply be an accounting entry on high of another person’s multisig pockets the place you don’t have any capability to regulate these cash on L1. You simply should belief the distributed group working the federation to not rug everybody. Even drivechains (which paradoxically itself requires new L1 performance to be achieved) is simply one other type of federation on the finish of the day, with some further restrictions added to the withdrawal course of. The federation is simply miners as a substitute of individuals holding non-public keys.
That is the implicit actuality, whether or not they perceive it or not, underlying the response “simply construct it on L2!” at any time when somebody is discussing enhancements to L1. There’s the scope of what’s already doable to construct on L2, which is quite restricted and restricted by its personal scaling limitations, after which there’s the scope of what’s not already doable. Every thing falling into the latter class is inconceivable to construct with out interjecting some trusted entity or group of entities that in the end is in charge of customers’ funds for them.
What’s the Level?
“Layer 2” isn’t a magic incantation. You may’t simply wave a magic wand and chant the phrases, and something and every part turns into magically doable. There are strict inescapable limitations of what an L2 can accomplish, and people limitations are what the L1 can accomplish. That is simply an inherent truth of engineering actuality when taking a look at a system like Bitcoin. You may’t escape it in any approach besides by degrading the belief assumptions an increasing number of the extra versatile of an L2 you construct past the capabilities of L1.
So when discussions round these points happen, akin to what enhancements will be made to L1, two issues are of utmost significance. First, these enhancements to L1 are virtually completely centered round enabling the development of extra versatile and scalable L2s. Secondly, L2s can’t magically allow every part. L2s have their very own limitations primarily based on these of the L1, and to have a dialogue relating to modifications to L1 with out acknowledging the one approach round these limitations is to introduce trusted entities isn’t an sincere dialog.
It’s time to begin acknowledging actuality if we’re going to focus on what to do with Bitcoin going ahead, in any other case nothing is going on however denial of actuality and gaslighting. And that isn’t productive.
