Game-Theoretic Analysis of (Non-)Refundable Fees in the Lightning Network

In PCNs, nodes that forward payments between a source and a receiver are paid a small fee if the payment is successful. The fee is a compensation for temporarily committing funds to the payment. However, payments may fail due to insufficient funds or attacks, often after considerable delays of up to several days, leaving a node without compensation. Furthermore, attackers can intentionally cause failed payments, e.g., to infer private information (like channel balances), without any cost in fees. In this paper, we first use extensive form games to formally characterize the conditions that lead to rational intermediaries refusing (or agreeing) to forward payments. A decision made by an intermediary to forward or not depends on the probability of failure, which they approximate based on past experience. We then propose and analyze an alternative fee model that allows the sender to determine and pay a fraction of the fee to intermediaries in a non refundable manner. A rational sender chooses the fraction such that the intermediaries' utility for forwarding the payment exceeds their utility for not forwarding. Our simulation study, based on real world Lightning snapshots, confirms that our novel mechanism can increase the probability of successful payments by 12 percent and decrease routing fees for senders by about 6 percent if all nodes behave rationally. Furthermore, previously cost free probing attacks now require that the attacker pays 1500 satoshis for every 1 million satoshis inferred. Finally, we propose a modification to the Hash Time Locked Contract to enable secure payments of the non refundable fees

On the difficulty of hiding the balance of lightning network channels

The Lightning Network is a second layer technology running on top of Bitcoin and other Blockchains. It is composed of a peer-to-peer network, used to transfer raw information data. Some of the links in the peer-to-peer network are identified as payment channels, used to conduct payments between two Lightning Network clients (i.e., the two nodes of the channel). Payment channels are created with a fixed credit amount, the channel capacity. The channel capacity, together with the IP address of the nodes, is published to allow a routing algorithm to find an existing path between two nodes that do not have a direct payment channel. However, to preserve users' privacy, the precise balance of the pair of nodes of a given channel (i.e. the bandwidth of the channel in each direction), is kept secret. Since balances are not announced, second-layer nodes probe routes iteratively, until they find a successful route to the destination for the amount required, if any. This feature makes the routing discovery protocol less efficient but preserves the privacy of channel balances. In this paper, we present an attack to disclose the balance of a channel in the Lightning Network. Our attack is based on performing multiple payments ensuring that none of them is finalized, minimizing the economical cost of the attack. We present experimental results that validate our claims, and countermeasures to handle the attac

On the difficulty of hiding the balance of lightning network channels

International audienceThe Lightning Network is a second layer technology running on top of Bitcoin and other Blockchains. It is composed of a peer-to-peer network, used to transfer raw information data. Some of the links in the peer-to-peer network are identified as payment channels, used to conduct payments between two Lightning Network clients (i.e., the two nodes of the channel). Payment channels are created with a fixed credit amount, the channel capacity. The channel capacity, together with the IP address of the nodes, is published to allow a routing algorithm to find an existing path between two nodes that do not have a direct payment channel. However, to preserve users' privacy, the precise balance of the pair of nodes of a given channel (i.e. the bandwidth of the channel in each direction), is kept secret. Since balances are not announced, second-layer nodes probe routes iteratively, until they find a successful route to the destination for the amount required, if any. This feature makes the routing discovery protocol less efficient but preserves the privacy of channel balances. In this paper, we present an attack to disclose the balance of a channel in the Lightning Network. Our attack is based on performing multiple payments ensuring that none of them is finalized, minimizing the economical cost of the attack. We present experimental results that validate our claims, and countermeasures to handle the attack