Fail-safe Watchtowers and Short-lived Assertions for Payment Channels

Abstract: The recent development of payment channels and their extensions (e.g., state channels) provides a promising scalability solution for blockchains which allows untrusting parties to transact off-chain and resolve potential disputes via on-chain smart contracts. To protect participants who have no constant access to the blockchain, a watching service named as watchtower is proposed -- a third-party entity obligated to monitor channel states (on behalf of the participants) and correct them on-chain if necessary. Unfortunately, currently proposed watchtower schemes suffer from multiple security and efficiency drawbacks. In this paper, we explore the design space behind watchtowers. We propose a novel watching service named as fail-safe watchtowers. In contrast to prior proposed watching services, our fail-safe watchtower does not watch on-chain smart contracts constantly. Instead, it only sends a single on-chain message periodically confirming or denying the final states of channels being closed. Our watchtowers can easily handle a large number of channels, are privacy-preserving, and fail-safe tolerating multiple attack vectors. Furthermore, we show that watchtowers (in general) may be an option economically unjustified for multiple payment scenarios and we introduce a simple, yet powerful concept of short-lived assertions which can mitigate misbehaving parties in these scenarios.