Layer 2 Is Not A Magic Incantation
A standard chant from many on this house nowadays in response to any dialogue of modifications to the Bitcoin protocol is “Don’t mess with Layer 1! You possibly can simply construct it on Layer 2!” This looks as if a really logical factor to do, proper? Why danger the safety and stability of L1 when you’ll be able to simply construct on prime of it? The issue is that this essentially fails to grasp the connection between Layer 1 and Layer 2.
An L2 protocol is an extension of the L1. Every part that an L2 is designed to do should finally cut back all the way down to what the L1 is able to. The blanket assertion of “simply do it on L2!” obfuscates quite a few implicit realities of what can or can’t be finished on an L2 given the present state of the bottom layer. As an illustration, think about making an attempt to construct the Lightning Community with out the existence of multisignature scripts. You couldn’t. It wouldn’t be potential to share management between a couple of individual, and the entire idea of a fee channel wouldn’t be potential.
The Evolution of Cost Channels
Your entire motive that fee channels can exist within the first place is due to the truth that L1 of Bitcoin helps the power for a number of individuals to share management of a UTXO with a multisig script. What is feasible on a L2 is inherently constrained by what is feasible on L1; sure, in fact it’s potential to do issues on L2 that aren’t potential on L1, however the finally limiting issue of what you are able to do off-chain is what is feasible on-chain. Quicker fee affirmation in a fee channel is just potential as a result of on-chain custody could be shared between a number of individuals.
Even that isn’t sufficient for a protected fee channel although. The unique fee channel had a pre-signed transaction utilizing an nLocktime timelock that offers the funder their a refund after so many blocks, and solely supported fee channels in a single path. Transaction malleability made these authentic fee channels unsafe to make use of. If the funding transaction was malleated by somebody earlier than confirming, then the refund transaction would turn into invalidated and the funder would don’t have any technique to declare their a refund. The opposite social gathering within the channel may successfully maintain their cash hostage.
CHECKLOCKTIMEVERIFY, absolutely the timelock opcode, was the answer. CLTV lets you make a coin unspendable till a sure blockheight or time sooner or later. This, together with the power to make scripts that may be spent in a number of methods, allowed the multisig UTXO to have a script path the place the funder may spend the entire funds themselves after a timelock. This assured the funder would be capable to declare the cash again in a worst case state of affairs even when the funding transaction was malleated. The channel may nonetheless solely facilitate one-way funds although.
So as to facilitate two-way funds, a correct answer to transaction malleability was crucial. This was an enormous motivator for Segregated Witness. A timelock is all that was crucial for a a method channel as a result of the cash solely elevated in a single path. The one danger to the sender was that the opposite social gathering would by no means declare what they’ve already been despatched on-chain, leaving the remainder of the sender’s cash trapped. The timelock refund each gave the receiver the motivation to assert funds on-chain earlier than the timelock, once they would lose all of the funds that they had already been despatched, and the sender a worst-case recourse in case one thing occurred to completely knock the receiver offline. Script doesn’t help imposing sure quantities to sure future scripts, so a pre-signed transaction is the one viable preliminary refund mechanism if funds are to movement in each instructions. This reopened the danger of funds being held hostage.
With the improve to Segwit, this downside was solved. Instead of the timelock refund incentivizing sincere habits, the penalty key was launched. As a result of the funds in a two-way channel can movement backwards and forwards in every path there’ll inevitably be a case the place either side had more cash in a previous state of the channel than the present one. By establishing a department in every channel state’s pre-signed transaction utilizing a penalty key, customers can alternate these after signing the brand new state and know if the opposite social gathering tries to make use of an outdated transaction they’ll declare 100% of the funds within the channel. Timelocks are used to ensure the traditional spending path the place customers take their respective balances isn’t legitimate for a time to provide channel events the possibility to make use of the penalty key if crucial. There’s an issue with this although, utilizing CLTV implies that sooner or later sooner or later the channel has to shut or else the timelock will expire and also you not have that security interval to penalize the dishonest social gathering.
Bi-directional fee channels additionally wanted CHECKSEQUENCEVERIFY, or relative timelocks, as a way to resolve this subject. In contrast to CLTV, which specifies a particular time or blockheight sooner or later, CSV specifies a relative size of time or variety of blocks from the time or block that the UTXO utilizing CSV within the script is confirmed within the blockchain. This allowed the security interval to operate for penalty key use with out requiring channels having to shut on-chain at a pre-decided time.
Even this doesn’t give us the Lightning Community although. There may be nonetheless no technique to truly route a fee throughout a number of fee channels. They will conduct funds in each instructions, however solely between the 2 individuals concerned within the channel. So as to route funds throughout a number of channels you want, you guessed it, different performance from the L1. Hash Time Locked Contracts are how that is completed, they usually require each CLTV in addition to hashlocks. Hashlocks require offering the preimage to a hash as a way to spend the cash. It’s like a signature, besides you truly simply reveal the “non-public key” as an alternative of signing with it. This enables the receiver in a Lightning fee to offer a hashlock, and each intermediate channel between sender and receiver create a script that permits spending instantly with the hash preimage, or refunding the cash backwards after a timelock. If the receiver reveals the hashlock, everybody can declare the cash for forwarding the fee, if not, then the cash could be claimed backwards and reversed with out finalizing it.
So the Lightning Community because it exists in the present day relies upon fully on 5 functionalities being potential on the bottom layer of Bitcoin. Multisignature scripts, absolute timelocks, relative timelocks, Segregated Witness, and hashlocks. With none one among these options present on L1, Lightning as we all know it in the present day wouldn’t be a potential L2 we may assemble. Its existence as an L2 is fully depending on L1’s functionality to do sure issues. So if one had been to, in a world with a Bitcoin that didn’t help hashlocks, timelocks in script, and no malleability repair, merely go “Simply construct a bidirectional multi-hop fee channel system on Layer 2! We shouldn’t be messing round with Layer 1” it could be a totally incoherent assertion.
The Catch
That mentioned, strictly technically talking, it nonetheless would have been potential to construct that bidirectional multi-hop fee channel system in that world with out these three options on L1. At a large price by way of introducing belief in different individuals to not steal your cash when they’re able to doing so. A federated sidechain. Everybody may have simply arrange a federated chain like Liquid or Rootstock and added these options to the sidechain, constructing the Lightning Community there as an alternative of on the mainchain. The issue with that’s, it’s not the identical factor. On a technical stage the community would operate precisely the identical, however nobody utilizing it could even have the identical diploma of management over their cash.
After they closed out a Lightning channel it could decide on a sidechain backed by a federation, i.e. it could simply be an accounting entry on prime of another person’s multisig pockets the place you haven’t any means to manage these cash on L1. You simply should belief the distributed group working the federation to not rug everybody. Even drivechains (which sarcastically itself requires new L1 performance to be finished) is simply one other type of federation on the finish of the day, with some additional restrictions added to the withdrawal course of. The federation is simply miners as an alternative of individuals holding non-public keys.
That is the implicit actuality, whether or not they perceive it or not, underlying the response “simply construct it on L2!” each time somebody is discussing enhancements to L1. There may be the scope of what’s already potential to construct on L2, which is slightly restricted and restricted by its personal scaling limitations, after which there’s the scope of what’s not already potential. Every part falling into the latter class is not possible to construct with out interjecting some trusted entity or group of entities that finally is answerable for customers’ funds for them.
What’s the Level?
“Layer 2” isn’t a magic incantation. You possibly can’t simply wave a magic wand and chant the phrases, and something and every part turns into magically potential. There are strict inescapable limitations of what an L2 can accomplish, and people limitations are what the L1 can accomplish. That is simply an inherent reality of engineering actuality when a system like Bitcoin. You possibly can’t escape it in any means besides by degrading the belief assumptions increasingly the extra versatile of an L2 you construct past the capabilities of L1.
So when discussions round these points happen, comparable to what enhancements could be made to L1, two issues are of utmost significance. First, these enhancements to L1 are virtually fully centered round enabling the development of extra versatile and scalable L2s. Secondly, L2s can’t magically allow every part. L2s have their very own limitations primarily based on these of the L1, and to have a dialogue concerning modifications to L1 with out acknowledging the one means round these limitations is to introduce trusted entities isn’t an sincere dialog.
It’s time to begin acknowledging actuality if we’re going to focus on what to do with Bitcoin going ahead, in any other case nothing is going on however denial of actuality and gaslighting. And that’s not productive.
