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Payment channel networks (PCNs) mitigate the scalability issues of current decentralized cryptocurrencies. They allow for arbitrarily many payments between users connected through a path of intermediate payment channels, while requiring interacting with the blockchain only to open and close the channels. Unfortunately, PCNs are (i) tailored to payments, excluding more complex smart contract functionalities, such as the oracle-enabling Discreet Log Contracts and (ii) their need for active participation from intermediaries may make payments unreliable, slower, expensive, and privacy-invasive. Virtual channels are among the most promising techniques to mitigate these issues, allowing two endpoints of a path to create a direct channel over the intermediaries without any interaction with the blockchain. After such a virtual channel is constructed, (i) the endpoints can use this direct channel for applications other than payments and (ii) the intermediaries are no longer involved in updates. In this work, we first introduce the Domino attack, a new DoS/griefing style attack that leverages virtual channels to destruct the PCN itself and is inherent to the design adopted by the existing Bitcoin-compatible virtual channels. We then demonstrate its severity by a quantitative analysis on a snapshot of the Lightning Network (LN), the most widely deployed PCN at present. We finally discuss other serious drawbacks of existing virtual channel designs, such as the support for only a single intermediary, a latency and blockchain overhead linear in the path length, or a non-constant storage overhead per user. We then present Donner, the first virtual channel construction that overcomes the shortcomings above, by relying on a novel design paradigm. We formally define and prove security and privacy properties in the Universal Composability framework. Our evaluation shows that Donner is efficient, reduces the on-chain number of transactions for disputes from linear in the path length to a single one, which is the key to prevent Domino attacks, and reduces the storage overhead from logarithmic in the path length to constant. Donner is Bitcoin-compatible and can be easily integrated in the LN. 

Tremendous growth in cryptocurrency usage is exposing the inherent scalability issues with permissionless blockchain technology. Payment-channel networks (PCNs) have emerged as the most widely deployed solution to mitigate the scalability issues, allowing the bulk of payments between two users to be carried out off-chain. Unfortunately, as reported in the literature and further demonstrated in this paper, current PCNs do not provide meaningful security and privacy guarantees [30], [40]. In this work, we study and design secure and privacy-preserving PCNs. We start with a security analysis of existing PCNs, reporting a new attack that applies to all major PCNs, including the Lightning Network, and allows an attacker to steal the fees from honest intermediaries in the same payment path. We then formally define anonymous multi-hop locks (AMHLs), a novel cryptographic primitive that serves as a cornerstone for the design of secure and privacy-preserving PCNs. We present several provably secure cryptographic instantiations that make AMHLs compatible with the vast majority of cryptocurrencies. In particular, we show that (linear) homomorphic one-way functions suffice to construct AMHLs for PCNs supporting a script language (e.g., Ethereum). We also propose a construction based on ECDSA signatures that does not require scripts, thus solving a prominent open problem in the field. AMHLs constitute a generic primitive whose usefulness goes beyond multi-hop payments in a single PCN and we show how to realize atomic swaps and interoperable PCNs from this primitive. Finally, our performance evaluation on a commodity machine finds that AMHL operations can be performed in less than 100 milliseconds and require less than 500 bytes of communication overhead, even in the worst case. In fact, after acknowledging our attack, the Lightning Network developers have implemented our ECDSA-based AMHLs into their PCN. This demonstrates the practicality of our approach and its impact on the security, privacy, interoperability, and scalability of today’s cryptocurrencies.