Page 53 - ITUJournal Future and evolving technologies Volume 2 (2021), Issue 1

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

ing parties will interact under the de ined rules to exe‑
cute the protocol. It provides mechanisms to embed gov‑
ernance rules in a veri iable way that can be audited by
the consensus algorithm. It facilitates a complex proce‑
dure that involves several third parties. Smart contracts
can be utilized in conditional/unconditional peer‑to‑peer
(P2P) transactions, voting, legal testament, etc. As always,
the duty of decision‑making is on the blockchain. Hence,
the blockchain inalizes the transaction outputs when the
smart contracts are utilized too.

3. PCNS AND THEIR CATEGORIZATION
3.1 Payment channel networks
Fig. 2 – A simple multi‑hop payment. Alice can initiate a transfer to Bob
Due to scalability issues researchers have always been in utilizing channels between Alice‑Charlie and Charlie‑Bob.
the search for solutions to make the cryptocurrency scal‑ ment of a network of payment channels among users,
able. Among many offered solutions, the off‑chain pay‑ which is referred to as PCN as shown in Fig. 3. A PCN, in
ment channel idea has attracted the most interest. essence, is a collection of payment channels. Going back
To establish such a channel, two parties agree on de‑ to the example given in Fig. 2, when Alice wants to trans‑
positing some money in a multi‑signature (2‑of‑2 multi‑ fer X units of money to Bob, they have to ind a path be‑
sig) wallet with the designated ownership of their share. tween each other in which each channel should have a
The multi‑sig wallet is created by a smart contract where satisfactory directional deposit so that it can handle the
both parties sign. The smart contract, mediated by the transfer of that amount. For incentivizing the intermedi‑
blockchain, includes the participants’ addresses, their arynodes, theresponsiblepartiescanpayforwardingfees
share in the wallet, and information on how the contract to the intermediaries. To prevent intermediaries from
will be honored. Approval of the funding transaction by stealing the funds a cryptographic hash lock protects the
theblockchaininitiatesthechannel. Afterward, theidea is money during the traversal. When an intermediary justi‑
simple; the payer side gives ownership of some of his/her ies that it knows the hash of the secret, the channel con‑
money to the other side by mutually updating the con‑ tract honors the transfer. Hence, when Alice initiates a
tract locally. To close the channel the parties submit the transfer to Bob she will share the secret with Bob in an
inal “commitment transaction” to the blockchain for it to out‑of‑bound communication channel. That will let Bob
honor the inal state of the channel. Thus, each side re‑ claim the transfer from the preceding node. In return, the
ceives its own share from the multi‑sig wallet. node will learn the secret and like a chain reaction, each
The off‑chain mechanism brings a huge advantage such node will claim the funds from the preceding node until
that the peers do not need to publish every transaction Alice. Current PCNs vary in terms of what topologies they
on the blockchain. That is, the payments are theoretically depend on and which Layer‑1 blockchain technology they
instantaneous. Moreover, as there is no need for frequent utilize. We discuss this categorization next. We will then
on‑chain transactions, the transactions will be protected explain each of these PCNs in more detail and categorize
from luctuating, unexpectedly high on‑chain transaction them in Section 4.
fees. Infact, a transactionfeecan bezero ifthe peers agree
so.
Payment channels created among many parties make the 3.2 PCN architectures
establishment of multi‑hop payments from a source to
a destination through intermediary nodes possible. As In this section, we categorize the types of network archi‑
shown in Fig. 2, Alice‑Charlie (A‑C) and Charlie‑Bob (C‑B) tectures that can be used in PCNs.
have channels. Let, A‑C and C‑B are initialized when time
is t. Although Alice does not have a direct channel to Bob,
she can still pay Bob via Charlie. At time t+x1, Alice initi‑ 3.2.1 Centralized architecture
ates a transfer of 10 units to Bob. The money is destined
to Bob over Charlie. When Charlie honors this transaction
in the C‑B channel by giving 10 units to Bob, Alice gives 10 In this type of network, there is a central node, and users
units of her share to Charlie in the A‑C channel. When the communicate with each other either over that central
transfers are over, A‑C and C‑B channel states get updated. node or based on the rules received from the central node
When time is t+x2, Alice makes another transaction (20 as shown in Fig. 4(a). From the governing point of view,
units) to Bob and the shares in the channel states get up‑ if an organization or a company can solely decide on the
dated once again. connections, capacity changes, and lows in the network,
The multi‑hop payment concept enables the establish‑ then this architecture is called to be a centralized one.

© International Telecommunication Union, 2021 37