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OTS-PC: OTS-based Payment Channels for the Lightning Network

Sergio Demian Lerner, Ariel Futoransky

TL;DR

We introduce OTS-PCs, a bidirectional off-chain payment channel built on One-Time Signatures over monotonically increasing state sequence numbers, achieving $O(1)$ on-chain storage per channel and reduced information leakage. The protocol remains compatible with the Lightning Network by supporting HTLCs and employs lightweight, privacy-aware watchtowers across multiple privacy levels. A three-part specification—setup, state updates, and close—paired with a simple transaction DAG enables secure state revocation through punishment transactions and timely unilateral exits. The approach delivers improved privacy, simpler state revocation, and practical watchtower deployment, with potential extension to multi-party channels while preserving security guarantees. $O(1)$ storage per channel and robust dispute mechanisms have significant implications for scalability and privacy in layer-2 payment channels.

Abstract

We present a new type of bidirectional payment channel based on One-Time Signatures on state sequence numbers. This new construction is simpler than the Poon-Dryja construction, but provides a number of benefits such as $O(1)$ storage per channel, minimal information leakage, and compatibility with Lightning Network routing.

OTS-PC: OTS-based Payment Channels for the Lightning Network

TL;DR

We introduce OTS-PCs, a bidirectional off-chain payment channel built on One-Time Signatures over monotonically increasing state sequence numbers, achieving on-chain storage per channel and reduced information leakage. The protocol remains compatible with the Lightning Network by supporting HTLCs and employs lightweight, privacy-aware watchtowers across multiple privacy levels. A three-part specification—setup, state updates, and close—paired with a simple transaction DAG enables secure state revocation through punishment transactions and timely unilateral exits. The approach delivers improved privacy, simpler state revocation, and practical watchtower deployment, with potential extension to multi-party channels while preserving security guarantees. storage per channel and robust dispute mechanisms have significant implications for scalability and privacy in layer-2 payment channels.

Abstract

We present a new type of bidirectional payment channel based on One-Time Signatures on state sequence numbers. This new construction is simpler than the Poon-Dryja construction, but provides a number of benefits such as storage per channel, minimal information leakage, and compatibility with Lightning Network routing.

Paper Structure

This paper contains 17 sections, 6 figures, 1 table.

Table of Contents

  1. Introduction
  2. Specification
  3. Transaction DAG
  4. Setup
  5. Committing to a New State
  6. Example
  7. Liveness Guarantees During Unilateral Exists
  8. Symmetric vs Asymmetric Exists
  9. Closing the Channel
  10. Watchtowers
  11. Level 1: Balance Privacy
  12. Level 2: Channel ID Privacy
  13. Level 3: Channel, Amount and Update Rate Privacy after Disputes
  14. Sharing Penalization Transactions
  15. HTLCs
  16. ...and 2 more sections

Figures (6)

  • Figure 1: The transaction Direct Acyclic Graph (DAG) for an OTS-PC
  • Figure 2: The transactions involved in a dispute. Alice tries to unilaterally exit with state $j=50$, but Bob punished her using the punishment transactions created in state $i=100$
  • Figure 3: The transaction Direct Acyclic Graph (DAG) for an OTC-PC with asymmetric exits
  • Figure 4: The transaction Direct Acyclic Graph (DAG) for an OTS-PC with Privacy Level 2
  • Figure 5: The transaction Direct Acyclic Graph (DAG) for an OTS-PC with Privacy Level 3
  • ...and 1 more figures