A Lightning Tx *IS* a bitcoin Tx, and here’s why: Part 2. – The additional Security-Mechanisms

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I recently made a post on this subReddit with the following title:

A Lightning Tx IS a bitcoin Tx, and here's why

Link: https://www.reddit.com/r/Bitcoin/comments/5xoijr/a_lightning_tx_is_a_bitcoin_tx_and_heres_why/

After this post I got some valid criticism from /u/jratcliff63367 for not highlighting the fact that a Lightning Tx is a zero-conformation Tx.

The source of my content was my own Lightning FAQ that I have published on Medium. Link: https://medium.com/@AudunGulbrands1/lightning-faq-67bd2b957d70#.p1nql0g2b

To address the criticism from /u/jratcliff63367 I have now added a new question to my Lightning FAQ.

Please check it out below: Feedback is appreciated as always!

Q 14.1: A standard bitcoin Tx is dependent on confirmations in the blockchain… So, is it really fair to claim that a Lightning Tx is the same as a normal bitcoin Tx?

This is a valid point, they are not the same… A Lightning Tx is a zero-confirmation Tx. But if it is broadcasted to the bitcoin network; it will be just as valid as any “on-chain” zero-confirmation Tx. Both types of Tx will eventually be mined into the bitcoin blockchain if they pay a sufficient fee.

However, a LN-Tx has a different security model that makes it much more reliable when compared to a standard zero-confirmation Tx.

A Lightning Tx is only indirectly secured by Proof of Work. This is due to fact that a Lightning Network will be completely dependent on the underlying bitcoin network (see Q12)

Within an open Lightning channel; there is a different set of game-theoretical mechanisms that provide a different type of security model.

Lightning will extend the capabilities of bitcoin without the need for a trusted third party. But the tradeoff is that you must monitor the bitcoin network by the operation of a full-node.

This monitoring can be outsourced, but in that case you must trust an external server to actually do its job. Your money will still not be routed through this server. The only role of the server is to monitor the bitcoin network, and to broadcast a so-called Penalty Transaction when necessary.

Note that the use of this service is an option, in case you don't want to run your own full-node. It will not be possible for this third party to steal money from a Lightning channel.

Also note that the LN is intended as a platform for low-value-transfer (sub $100)

All LN transactions are multi-signature and both participants in a channel must sign for a Tx to become valid. A traditional double-spending attack is therefore made extremely difficult. However, there is a risk that someone can broadcast an obsolete Lightning Tx to the bitcoin network. An obsolete Lightning Tx is a Tx that does not represent the latest state of its channel.

The above mentioned risk is the reason that you (or a service that you trust) must operate a “Watcher Node”. This node will monitor all the transactions that are broadcasted to the bitcoin network.

If your Watcher Node discovers an obsolete Tx; it will (as a countermeasure) broadcast a “Penalty Transaction” The Penalty Transaction gives you the power to confiscate all the money within your channel (including the money that belongs to your counterpart) However, a penalty Tx can only become valid after the discovery of a broadcasted obsolete Tx.

Your ability to broadcast a Penalty Transaction makes it very risky for your counterpart to broadcast an obsolete Tx.

Another security/privacy feature, is that all Lightning Tx will be end-to-end encrypted between the participants.

Conclusion: The security model of a Lightning Tx is different from the security model of traditional bitcoin Tx. A Lightning Tx will still be regarded as a valid bitcoin Tx if broadcasted to the bitcoin network.

However; A Lightning Tx will not be publicly broadcasted as long as the channel stays open. It will only be exchanged between the participants in a channel, and they will store the Tx locally.

We can therefore define a Lightning-Tx as: A Non-Broadcasted-Zero-Confirmation-Bitcoin-Tx with some additional Security-Mechanisms.

submitted by /u/ABrandsen
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