Page 51 - ITUJournal Future and evolving technologies Volume 2 (2021), Issue 1

ITU Journal on Future and Evolving Technologies, Volume 2 (2021), Issue 1

AN EVALUATION OF CRYPTOCURRENCY PAYMENT CHANNEL NETWORKS AND THEIR PRIVACY
IMPLICATIONS

1
2
Enes Erdin , Suat Mercan , Kemal Akkaya 2
1 Department of Computer Science, University of Central Arkansas, Conway, AR 72035, Department of Electrical and
2
Computer Engineering Florida International University Miami, FL 33174
NOTE: Corresponding author: Enes Erdin (eerdin@uca.edu)

Abstract – Cryptocurrencies rede ined how money can be stored and transferred among users. However, public blockchain‑
based cryptocurrencies suffer from high transaction waiting times and fees. To address these challenges, the payment channel
network concept is touted as the most viable solution to be used for micro‑payments. The idea is exchanging the ownership
of money by keeping the state of the accounts locally which provides transaction approvals in seconds. Such attention on
payment channel networks has inspired many recent studies that focus on how to design them and allocate channels such
that the transactions will be secure and ef icient. However, as payment channel networks are emerging and reaching a large
number of users, privacy issues are becoming more relevant, this raises concerns about exposing not only individual habits
but also businesses’ revenues. In this paper, we irst propose a categorization of the existing payment networks formed on top
of blockchain‑backed cryptocurrencies. After discussing several emerging attacks on user/business privacy in these payment
channel networks, we qualitatively evaluate them based on a number of privacy metrics that relate to our case. Based on
the discussions on the strengths and weaknesses of the approaches, we offer possible directions for research for the future of
privacy based payment channel networks.

Keywords – Bitcoin, blockchain, lightning network, payment channel network, routing protocols

1. INTRODUCTION among many participants and channels the participants
pay through others by using them as relays, essentially
There are many modern money exchange systems such forming a connected network. This is in essence a Layer‑2
as paper checks, credit/debit cards, Automated Clear‑ network application running on top of a cryptocurrency
ing House (ACH) payments, bank transfers, or digital which covers the Layer‑1 services. A perfect example of
cash which are owned and regulated by inancial institu‑ PCNs is Lightning Network (LN) [4] which uses Bitcoin
tions. Nevertheless, in the evolving world of trade, the and reached many users in a very short amount of time.
movement of money is still going through changes. The
Raiden [5], based on Ethereum, is another example of a
last decade witnessed the introduction of Bitcoin [1], a
successful PCN.
new paradigm‑shifting innovation where the users con‑
trol their own money without needing a trusted third The emergence of PCNs led to several researchchallenges.
party. In this model, the users are governing the system In particular, the security of the off‑chain payments is
by coming to a consensus for controlling the transfer and very important as users can lose money or liability can be
the ownership of the money. Following the success of denied. Besides, the ef iciency of payment routing within
Bitcoin, new cryptocurrencies that offer new capabilities the PCN with a large number of users is tackled. Such ef‑
were introduced based on the idea of consensus‑based ac‑ forts paved the way for introducing many new PCNs in
count management [2, 3]. addition to LN. These PCNs rely on various cryptocurren‑
Not so long after, the initial success of cryptocurrencies cies and carry several new features. As these newly pro‑
was hindered due to practicality issues in their daily use. posed PCNs become more prominent there will be heavy
Basically, it was a very limited system in terms of scalabil‑ user and business involvement which will raise issues re‑
ity and its wide acceptance for simple daily transactions garding their privacy just as the user privacy on the Inter‑
was quite impossible due to high con irmation waiting net. The difference is that in many cases, Internet privacy
times, highly disproportional transaction fees, and low could be regulated but this will not be the case for PCNs as
throughput. their very idea is based on decentralization. For instance,
Among many solutions an off‑chain payment channel a user will naturally want to stay anonymous to the rest of
idea arose as a well‑accepted one for solving the above‑ the network while a business would like to keep its rev‑
mentioned problems. The idea is based on establishing enue private against its competitors.
off‑chain links between parties so that many of the trans‑ Therefore, in this paper, we investigate this very emerg‑
actions would not be written to the blockchain each time. ing issue and provide an analysis of current PCNs along
The payment channel idea later evolved towards the es‑ with their privacy implications. We irst categorize the
tablishment of payment channel networks (PCN), where PCNs in light of common network architectures and

© International Telecommunication Union, 2021 35