Blockstream and one of its developer teams, has released an important research paper that proposes to change the Lightning Network (LN) settlement system and a change to the Bitcoin Core protocol. The proposal is known as eltoo and would replace the update mechanism used by the LN. The main purpose is to improve the functionality.

Eltoo – To Modify LN’s Settlement System

The lightning network could be one of the main solutions to the scalability problem that the Bitcoin network experiences. According to Blockstream developers, Christian Decker and Rusty Russell, there is a way to improve the LN using a protocol called eltoo.

The released research paper by the developers and Lightning Labs’s Olaoluwa Osuntokun, lays out the eltoo protocol.

The eltoo research paper reads as follows:

“eltoo has fundamentally different tradeoffs than the mechanism presented in the original Lightning paper, which we’ll call LN-penalty; while LN-penalty used a penalty system to punish a misbehaving party, eltoo simply enforces the latest agreed-upon state of the off-chain contract. This has important implications for the applicability and safety of the protocols that are built on top of the update mechanism.”

Using LN, users are able to transact via payment channels. The channels allow parties to make an unlimited number of transactions between themselves without broadcasting them to the bitcoin blockchain. Once the participants are finished, the channel is closed and transmit the final update status of the channel balance to the main chain.

Eltoo continually updates the payment channel balances by recording all the transactions, and then it allows the intermediate states to be skipped so that only the last settlement transaction is confirmed to the blockchain.

In order for eltoo to work, a change to the Bitcoin protocol itself would be needed. The introduction of the SIGHASH_NOINPUT flag to signatures would have to be included via a soft fork.

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