Counter-Collusion Smart Contracts for Watchtowers in Payment Channel Networks

Abstract

Payment channel networks (PCNs) are proposed to improve the cryptocurrency scalability by settling off-chain transactions. However, PCN introduces an undesirable assumption that a channel participant must stay online and be synchronized with the blockchain to defend against frauds. To alleviate this issue, watchtowers have been introduced, such that a hiring party can employ a watchtower to monitor the channel for fraud. However, a watchtower might profit from colluding with a cheating counterparty and fail to perform this job. Existing solutions either focus on heavy cryptographic techniques or require a large collateral. In this work, we leverage smart contracts through economic approaches to counter collusions for watchtowers in PCNs. This brings distrust between the watchtower and the counterparty, so that rational parties do not collude or cheat. We provide detailed analyses on the contracts and rigorously prove that the contracts are effective to counter collusions with minimal on-chain operations. In particular, a watchtower only needs to lock a small collateral, which incentivizes participation of watchtowers and users. We also provide an implementation of the contracts in Solidity and execute them on Ethereum to demonstrate the scalability and efficiency of the contracts.