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L. Aumayr, O. Ersoy, A. Erwig, S. Faust, K. Hostáková, M. Maffei, P. Moreno-Sanchez, S. Riahi:
"Generalized Bitcoin-Compatible Channels";
Report for Cryptology ePrint Archive; Report No. 2020/476, 2020; 35 pages.

The widespread adoption of decentralized cryptocurrencies, such as Bitcoin or Ethereum, is currently hindered by their inherently limited transaction rate. One of the most prominent proposals to tackle this scalability issue are payment channels which allow mutually distrusted parties to exchange an arbitrary number of payments in the form of off-chain authenticated messages while posting only a limited number of transactions onto the blockchain. Specifically, two transactions suffice, unless a dispute between these parties occurs, in which case more on-chain transactions are required to restore the correct balance. Unfortunately, popular constructions, such as the Lightning network for Bitcoin, suffer from heavy communication complexity both off-chain and on-chain in case of dispute. Concretely, the communication overhead grows exponentially and linearly, respectively, in the number of applications that run in the channel. In this work, we introduce and formalize the notion of generalized channels for Bitcoin-like cryptocurrencies. Generalized channels significantly extend the concept of payment channels so as to perform off-chain any operation supported by the underlying blockchain. Besides the gain in expressiveness, generalized channels outperform state-of-the-art payment channel constructions in efficiency, reducing the communication complexity and the on-chain footprint in case of disputes to linear and constant, respectively. We provide a cryptographic instantiation of generalized channels that is compatible with Bitcoin, leveraging adaptor signatures -- a cryptographic primitive already used in the cryptocurrency literature but formalized as a standalone primitive in this work for the first time. We formally prove the security of our construction in the Universal Composability framework. Furthermore, we conduct an experimental evaluation, demonstrating the expressiveness and performance of generalized channels when used as building blocks for popular off-chain applications, such as channel splitting and payment-channel networks.