The project comes from Rootstock, the startup known for proposing a sidechain aimed to one day port over ethereum’s smart contract functionality to bitcoin without impacting the main blockchain.
Technically, the new proposal combines in one project a number of technologies in development around bitcoin: sidechains, the Lightning Network and other solutions that achieve on-chain scaling.
While sidechain functionality has not been added to bitcoin yet, bitcoin security consultant Sergio Demian Lerner has still been working at building layers on top of Rootstock, including a compatible version of the Lightning Network, known as 'Lumino'.
Through this process, Lerner came up with something called Lumino Transaction Compression Protocol (LTCP), outlined in his white paper.
LTCP boosts transaction capacity by way of 'on-chain scaling', a phrase that seems to mean different things to different people. In this instance, LTCP uses clever compression engineering to allow for more transactions to be settled on the blockchain.
Lerner told CoinDesk:
"The LTCP protocol allows the Lumino network [to] settle and top up payment channels while consuming very little blockchain space."
Reaching more users
The idea to scale the bitcoin payment network to support more users is shared by other aspiring projects in the space, such as the Lightning Network, which could one day offer a top-layer to the digital currency, and MimbleWimble, which uses an entirely new transaction structure.
Meanwhile, ‘on-chain' scaling is a type geared specifically toward fitting more data directly into each block on the bitcoin blockchain. Even if bitcoin goes the route of scaling using 'off-chain' protocols, such as Lightning Network (and only settling on the bitcoin blockchain from time to time), on-chain advancements will help build out more room for users to actually settle those transactions, according to Lerner.
"By increasing the on-chain capacity, we can reach much more people. As simple as that," he said. In the paper, he goes as far as to argue that the system could scale to meet the transacting needs of as many as one billion users.
In that light, once Lightning Network rolls around, on-chain capacity could still be an impediment to overall transaction capacity.
"Because each active user will periodically either top up or settle his payment channels (to extract from or add funds to it), and these operations always require on-chain transactions, the number of active users is limited by the on-chain capacity, not by the off-chain capacity," Lerner explained.
Pruning old data
Rather than a UTXO (unspent transaction output) model, as is used in bitcoin, the ethereum-inspired Rootstock uses an account-based model, which is currently incompatible with bitcoin.
To add this functionality as a sidechain requires a soft fork, such as the one Lerner proposed last fall. Lumino, the payment channel network, and LTCP, the data-reducing protocol, are built on top of that.
'Delta compression', a way of reducing the amount of data, is LTCP’s main innovation. Compared to a throughput of roughly 2–3 transactions per second on bitcoin, the white paper claims that the protocol allows for something closer to 2,000 transactions per second on the sidechain, and 100 or more on the bitcoin blockchain.
So how does it work?
There is certain data that can be removed over time, as users refill payment channels. Say, to start, a user opens a payment channel with one bitcoin. When it runs out, the user refills it.
Essentially, with each new refill, LTCP looks at transactions that it was previously linked to and prunes signature data associated with those old transactions. It only needs to include the first transaction and the final transaction, while the signatures and other data from the middle links can be removed.
An image from the white paper of an example transaction sketches out the process:
Pros and cons
Developers are now probing the limitations of LTCP, however, as revealed in a discussion after Lerner's presentation at the BitDevs meetup in New York City, with the possibility of 'selfish mining' being raised.
Further, one audience member noted that LTCP could cut back user privacy.
Lerner disagreed, countering that the Rootstock sidechain is not any less private than ethereum.
In cryptocurrencies, if users continue to use the same account for each transaction, then others can use a 'block explorer' to trace their transaction history. Typically, privacy-oriented users generate new accounts with each transaction to get around this privacy limitation.
Lerner suggested that users could continue to do this, or use so-called 'tumbling' services to obfuscate the origin of their coins.
However, when asked if this would impact the level of compression, he admitted that if users do generate many accounts, then they are not contributing to on-chain transaction scalability with LTCP.
"It's a tradeoff," said Lerner.
Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Rootstock.
Fuse image via Shutterstock