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Lightning Network

A Look at the Lightning Network Eltoo Protocol





The Lightning Network has some impressive capabilities and many in the cryptocommunity are looking to this innovative off-chain solution as the saving grace from Bitcoin's scalability issues.   The innovative minds behind the Blockstream development team have proposed an upgrade that would make the Lightning Network even faster and more efficient by reducing the number of times the Lightning Network payment channel must interact with the BTC blockchain.

The Eltoo Protocol 

The Eltoo protocol was designed to improve on the Lighting Network's current punishment functionality.  Basically, if a Lightning Network transaction shows that one party is attempting to submit a past balance as current, that party automatically loses those funds to the other party in the transaction.  This was necessary to prevent scammers from attempting to bog down the network with false transaction information.

lightning network-punishmentThe problem with this punishment structure is that in some cases, old transaction data can be presented within the payment channel by accident.  When this occurs it automatically kicks the channel into the LN punishment protocol.  While this could be an annoyance for users it is a huge issue for LApp developers.

Why Eltoo is Important

Eltoo works as a mediator between the two parties involved in the transaction.  In its current state, users would open a Lightning Network payment channel between two parties to conduct transactions.  This channel would remain open until all transactions have been completed and the channel is closed.   This allows the parties involved to conduct unlimited transactions without bogging down the BTC blockchain.

Once the transactions have been completed, the Lightning Network payment channel is closed and the relevant data is supplied to the BTC blockchain.  If there is a discrepancy the Eltoo protocol automatically completes the transaction based on the last input.

The Eltoo protocol would improve these transaction protocols by enabling the Lighting Network to periodically ping the BTC blockchain to ensure that the transaction details are following a logical transaction path.  This allows the BTC blockchain to receive data from both parties and confirm that all of the individuals involved in the transaction are submitting the exact information.  Once the transaction is closed the Blockchain is able to settle the transaction based on the information gathered prior.

lightning-strikeThe Eltoo protocol allows the transaction to skip intermediate states by rebinding a later update transaction to a previous transaction or the initial setup transaction.  This allows the blockchain to only confirm the last settlement transaction.  This is accomplished by representing every stage of the process as two transactions.

In its current, the Lighting Network utilizes a “checks and balances” type of protocol.  The first is an update transaction that spends the output and creates a new one.  The second transaction is used as a confirmation that spends the output and splits the funds in accordance with the data.  New update transactions are attached immediately via an update script.

The protocol utilizes this self-verification system to allow the final transaction to be pitted against the update transactions.  This long chain of update transactions is terminated upon the last settlement verification.

Eltoo eliminates the need for these midterm transaction verifications and instead pins the final transaction to the contract creation to verify the validity of the transaction.  This provides users with a more streamlined experience with less need to send data to the Bitcoin blockchain.


The Eltoo protocol is gaining steam among LN advocates.  To institute Eltoo, it will be required to add the SIGHASH flag and SIGHASH_NOINPUT to the Bitcoin protocol.  These codes would allow any transaction to bind to any other transaction with a matching script.

We may not be too far from seeing this exciting new protocol instituted but it will take a consensus from the BTC community as it would require the BTC blockchain to soft fork.  The LN network continues to see improvement and the Eltoo protocol is just one major step in restoring BTC to its previous glory.  Hopefully, the team behind the Eltoo protocol is successful in swaying the community into the soft fork as there are many advantages that can be had through implementing this protocol.

What do you guys think?  Is the LN going to get even faster thanks to Eltoo?  Let us know in the comments below.