Bitcoin Lightning Network “Watchtowers” are Coming, Will Amp Up Security and Combat Fraud
- Bitcoin's layer-two scaling solution, the Lightning Network (LN), has been developed to expedite crypto transfers.
- However, the LN is still in its experimental stages and will need massive improvements in order to be used reliably.
“Watchtower” for Lightning Network (LN) to Be Launched Soon
Currently, there is a huge problem on the Lightning Network. A node on the Lightning Network must always be on. If you are offline for a few days, it’s possible for someone to steal your funds.
This is because when someone tries to double spend by submitting an earlier channel state, you only have a few days to respond with the most up to date channel state. This means you must always be monitoring your channels or you must be working with a Watchtower.
Essentially, in its simplest form, a watchtower is a program that watches the blockchain to see when a particular transaction is broadcast to the mempool.
If that transaction is flagged in its memory as part of an outdated contract, it broadcasts the latest version of the contract it knows about. They have no control of funds. They don't need ID about their users or where the funds are destined for. They are simple tools for identifying old contracts that somehow get broadcasted, and replacing them with the latest versions.
For their services, they collect fees from users, and various monetization approaches could be used. Users can also outsource channel monitoring to multiple watchtower services in case one fails.
Watchtowers are Far from Perfect Currently
Running a watchtower requires a sizeable infrastructure. At a bare minimum, the watching server needs to have enough resources to store potentially billions of blobs and run a Bitcoin node.
As such, it can not be expected for watchtower to provide a service for free, there should be a reward of some kind or else an owner might be tempted to just stop operation at some point and leave wallet users insecure.
Large-scale watchtowers would need to have enough resources to store millions or billions of ‘blobs’. As the user base increases, the amount of saved states increases quadratically, leading to high operational costs for the business in the form of data storage.
Watchtowers Can Be Multi-Dimensional
Watchtowers could potentially add the service of maintaining your history and even pushing the most up to date history to the smart contract in the case of an attack. It can potentially make money via an insurance model or a pay per incident model.
The watchtower market is not perfected yet as the LN is still growing into a larger P2P payments network on top of Bitcoin. Still, the research and innovations in the field provide some compelling accounts for a future ecosystem of LN watchtowers. It is expected to be out soon.