Optimizing virtual payment channel establishment in the face of on-path adversaries

Abstract

Payment channel networks (PCNs) are among the most promising solutions to the scalability issues in permissionless blockchains, allowing parties to pay each other off-chain through a path of payment channels (PCs). However, the cost of routing transactions is proportional to the number of intermediaries since each charges a fee. Analogous to other networks, malicious intermediaries on the path can lead to security/privacy threats. Virtual channels (VCs), i.e., bridges over PC paths, mitigate the above PCN issues: Intermediaries participate only in the VC setup but in no future VC payments. However, creating a VC has a cost that must be paid out of the bridged PCs’ balance. Currently, we are missing guidelines on how/where to set up VCs. Ideally, VCs should minimize transaction costs while mitigating security and privacy threats from on-path adversaries. In this work, we address for the first time the VC setup problem, formalizing it as an optimization problem. We present an integer linear program (ILP) computing the globally optimal VC setup strategy in terms of cost, security, and privacy. We accompany this expensive ILP with a fast, greedy algorithm. Our model and algorithms can be used with any on-path adversary whose strategy can be expressed as a set of corrupted nodes. We evaluate the greedy algorithm over a snapshot of the Lightning Network (LN), the largest Bitcoin-based PCN. Our results confirm that the greedy strategy minimizes costs while protecting against security and privacy threats and may serve the LN community as guidelines for VC deployment.