[Lightning-dev] reducing the number of blockchain transactions used by the LN, and the fees paid to confirm them

[Jim Renkel]

Hello, all!

I'm a long-time computer networking developer, but a newbie to 
cryptocurrency, and am interested in contributing to its development.

While looking at the lightning network design and code, I've come up 
with an idea the would reduce the number of blockchain transactions used 
by the LN, and the fees paid to confirm them, in a common LN use case.

I did a quick search and couldn't find this idea presented previously, 
but I may have missed it. If so, or if the idea is faulty, I'm sure you 
guys will let me know. :-)

And forgive me if I don't have the terminology quite right yet.

The use case I am referring to is the frequent, repeated purchases by a 
customer from the same merchant over an extended period of time. I think 
this will be a common use case.

For example: Alice buys a cup of coffee from Bob's Coffee Shoppe every 
day, has done so for years, will do so for years.

To use the LN to pay for these purchases, Alice opens and funds an LN 
channel to Bob. This takes one blockchain transaction.

As coffees are purchased every day, funds are transferred from Alice to 
Bob in the channel without any blockchain transactions.

Alice cannot afford to fund the channel for an extended period of time, 
and Bob is unwilling to wait an extended period of time to be paid for 
the coffees Alice has purchased.

So every week or so, Alice and Bob close the channel, Alice gets back 
any unspent funds, and Bob gets the funds that have been transferred to 
him for Alice's purchases. Then Alice and Bob re-open the channel with 
new funding from Alice. Closing and re-opening the channel each take one 
blockchain transaction.

Over the life of the channel, if there are n close/re-open cycles, 2*n 
blockchain transactions are required: 1 to open the channel initially, 2 
each time the channel is closed and re-opened (n-1 times), and 1 to 
close the channel finally.

If the LN were enhanced with an operation to deposit and withdraw 
funding in the channel to and from the blockchain without closing the 
channel, this could be done with a single blockchain transaction that is 
essentially the merge of the closing and re-opening blockchain transactions.

In this example, each adjustment will only pay Bob his accumulated but 
as yet unpaid funds and charge Alice for the new funds she places into 
the channel, but leave Alice's unspent funds in the channel. The channel 
could continue to operate between the launching and confirmation of the 
adjustment transaction if Alice has unspent funds in the channel.

Then the n cycles would only require n+1 blockchain transactions: 1 to 
initially open the channel, 1 each time the channel funding is adjusted 
(total n-1), and 1 to finally close the channel. This is a significant 
reduction in the number of blockchain transactions required, approaching 
50% in the limit as n approaches infinity.

What about blockchain transaction fees? I've done the analysis, but it's 
quite long (several conditions and dozens of combinations of conditions 
to consider), so I won't include it here now. I will included it in 
another post if anyone is interested and doesn't do the analysis for 
themselves.

The bottom line of the analysis is that the number of inputs and the 
number of outputs in the funding adjustment transaction are each never 
greater than the sum of the number of inputs and the number of outputs, 
respectively, in the channel opening and closing transactions that the 
adjustment transaction replaces.

Thus the adjustment transaction is:
- never bigger than the closing and re-opening transactions put together,
- sometimes smaller, and
- occasionally significantly smaller.

And there's only one transaction instead of two, so ya always save on 
the transaction header! :-)

Thus, the fee paid for the adjustment transaction, assuming the same fee 
rate for all the transactions, is:
- never more than the sum of the fees paid for the closing and 
re-opening transactions,
- sometimes less, and
- occasionally significantly less.

This reduction in fees is by an additive amount.

Because the channel remains open while waiting for the adjustment 
transaction to confirm, there may be less urgency in having it confirm. 
So it's fee rate can be reduced, reducing the fee paid by a 
multiplicative amount.

Combined, these two effects lead to a reduction in total fees paid for 
operating the channel, sometimes a significant reduction.

Comments expected and welcome.

If this high-level, bare-bones idea to seen to be worthy of further 
consideration, I would like to work with the community to flesh out a 
detailed specification, and, if consensus can be reached on that, to 
participate in the implementation of it.

Jim Renkel