Sleepy Channels: Bi-directional Payment Channels without Watchtowers

Payment channels (PC) are a promising solution to the scalability issue of cryptocurrencies, allowing users to perform the bulk of the transactions off-chain without needing to post everything on the blockchain. Many PC proposals however, suffer from a severe limitation: Both parties need to constantly monitor the blockchain to ensure that the other party did not post an outdated transaction. If this event happens, the honest party needs to react promptly and engage in a punishment procedure. This means that prolonged absence periods (e.g., a power outage) may be exploited by malicious users. As a mitigation, the community has introduced watchtowers, a third-party monitoring the blockchain on behalf of off-line users. Unfortunately, watchtowers are either trusted, which is critical from a security perspective, or they have to lock a certain amount of coins, called collateral, for each monitored PC in order to be held accountable, which is financially infeasible for a large network. We present Sleepy Channels, the first bi-directional PC protocol without watchtowers (or any other third party) that supports an unbounded number of payments and does not require parties to be persistently online. The key idea is to confine the period in which PC updates can be validated on-chain to a short, pre-determined time window, which is when the PC parties have to be online. This behavior is incentivized by letting the parties lock a collateral in the PC, which can be adjusted depending on their mutual trust and which they get back much sooner if they are online during this time window. Our protocol is compatible with any blockchain that is capable of verifying digital signatures (e.g., Bitcoin), as shown by our proof of concept. Moreover, our experimental results show that Sleepy Channels impose a communication and computation overhead similar to state-of-the-art PC protocols while removing watchtower's collateral and fees for the monitoring service.