ELTOO: For OFF-CHAIN CONTRACTS

In the recent past, Bitcoin the largest public blockchain network have made people think about the scalability of the network. Originally designed and developed to transact as a currency, is now the leading Cryptographic asset in the world.

Lightning Protocol, introduced by Lightning Labs is the network layer built on top of the existing Blockchain network which works to solve the problems of scalability faced by the cryptocurrency network offering instant and high volume payments. The protocol is successfully implemented in the bitcoin and litecoin blockchain.

With the rising global demand for Bitcoin and other Cryptocurrencies and global crisis erupting due to the cost of running the mining machines. Some of the best minds in the cryptography and blockchain are working towards solving the problems.

One such problem is scalability. Blockstream is a pioneer in building bitcoin and blockchain related solutions. Founded by Dr. Adam Back and other groups of Cryptographers, the team focuses on building the financial infrastructure for blockchain. Liquid, Cryptocurrency data feed, Blockstream satellite, and Block explorer are products built by Blockstream. We will take a deeper look in their products in the upcoming blogs. This blog will be focused on ELTOO.

What is ELTOO?

Eltoo is a simplified update mechanism for lightning and off chain contracts. What does that mean? To break down ELTOO into a layman’s perspective it is nothing more than a flyover built on a densely trafficked road, with the endpoints connecting the same route. Let’s dive a little deeper.

Consider a group of friends A, B,C, D, E, and F are planning for a road trip. The team interact with each other and decides the budget for the trip. In the course, each one takes up a role and works towards executing the plan. One takes care of the vehicle for a commute, one for stay and hotel, one for routes for travel and so on. In this event, a lot of internal transactions are set to happen and since a lot of money is involved they decided to make transactions in a secure network, say a bitcoin blockchain.

There are going to be multiple transactions involved in this course. Instead of taking these transactions to ON-chain or main blockchain network. BLOCKSTREAM suggests a way to settle the transactions OFF the chain and link the final output or value to the last existing block in the blockchain, without compromising the security proposed by LN( Lightning Network). When the group of friends listens to this proposal, they become skeptical.

The idea Blockstream proposed was ELTOO. It helps in settling off chain transactions and linking or binding the final output to the main or original blockchain. This is done through a process called Floating transactions i.e transactions that can be bound to any previous transaction with matching scripts, with it the ability to skip intermediate states.

The key takeaway is transactions are settled OFF chain and the output is updated to the ON chain or the main blockchain. Since the ongoing transactions happening in the main blockchain continues the transactions are matched with scripting languages. This may be a minor update proposed by Blockstream, but it is one of the logically proposed ways to solve the scalability issue in Bitcoin.

Technical readers can access the following links to know the complete functionality of ELTOO

  1. eltoo: A Simplified Update Mechanism for Lightning and Off-Chain — https://blockstream.com/2018/04/30/eltoo-next-lightning/
  2. eltoo: A Simple Layer2 Protocol for Bitcoin — https://blockstream.com/eltoo.pdf
  3. Lightning Labs — https://lightning.engineering/index.html#home
  4. Blockstream — https://blockstream.com

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