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2019 | OriginalPaper | Chapter

# Multi-party Virtual State Channels

Authors : Stefan Dziembowski, Lisa Eckey, Sebastian Faust, Julia Hesse, Kristina Hostáková

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## Abstract

Smart contracts are self-executing agreements written in program code and are envisioned to be one of the main applications of blockchain technology. While they are supported by prominent cryptocurrencies such as Ethereum, their further adoption is hindered by fundamental scalability challenges. For instance, in Ethereum contract execution suffers from a latency of more than 15 s, and the total number of contracts that can be executed per second is very limited. State channel networks are one of the core primitives aiming to address these challenges. They form a second layer over the slow and expensive blockchain, thereby enabling instantaneous contract processing at negligible costs.
In this work we present the first complete description of a state channel network that exhibits the following key features. First, it supports virtual multi-party state channels, i.e. state channels that can be created and closed without blockchain interaction and that allow contracts with any number of parties. Second, the worst case time complexity of our protocol is constant for arbitrary complex channels. This is in contrast to the existing virtual state channel construction that has worst case time complexity linear in the number of involved parties. In addition to our new construction, we provide a comprehensive model for the modular design and security analysis of our construction.

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Footnotes
1
The startup L4 and their project Counterfactual [7] use a different terminology: virtual channels are called “meta channels”, but the concepts are the same.

2
In Ethereum typically $$\varDelta$$ equal to 6 min is assumed to be safe.

3
Technically, this is done by one of the parties, $$\mathsf {Alice}$$, say, calling a constructor function, and then $$\mathsf {Bob}$$ calling another function to confirm that he agrees to deploy this contract instance. To keep our description simple, we omit these details here.

4
Notice that $$\mathtt {SCC}$$ is oblivious to what happened inside the ledger state channel $$\gamma$$ after it was created.

5
In the example that we considered, $$\mathsf {Bob}$$ can now force $$\mathsf {Alice}$$ bear the consequences that he revealed x to the contract instance.

6
While it is sufficient that only one intermediary is malicious, it has to be the intermediary that was involved in the last step of the recursion, i.e., in the example from above: party $$P_{n/2}$$.

7
To keep things simple we do not allow the recursion to build virtual channels on top on n-party channels for $$n>2$$. We leave describing this extension as a possible future research direction.

8
In case one party behaves maliciously, an agreement is reached via the state registration process.

9
In practice, this information would be used to derive fees charged by the intermediary for its service.

10
Recall from Sect. 2 that disagreements in channels with indirect dispute might require interaction with the blockchain as well. However this happen only in the worst case when all parties are corrupt.

11
The value of $$\tau$$ can be set by the adversary as long as it is smaller than some upper bound T which is of order $$O(\gamma .{\mathsf {length}}\cdot \varDelta )$$.

12
In case at least one user is corrupt, the value of $$\tau$$ can be set by the adversary as long as it is smaller that some upper bound T which is of order $$O(\gamma .{\mathsf {length}}\cdot \varDelta )$$.

13
Let us emphasize that this design choice does not necessarily lead to a fair coin distribution. For example, when users of the multi-party channel play a game and one of the users is “about to win” all the coins when round $$\gamma .\mathsf {validity}$$ comes. Hence, honest parties should always agree on new contract instances only if they can enforce contract termination before time $$\gamma .\mathsf {validity}$$ or if they are willing to take this risk.

14
For simplicity, we describe here how $$\mathcal {F}_{ DB }$$ handles a dispute about a two-party contract. $$\mathcal {F}_{ DB }$$ handles disputes about multi-party contracts in a similar fashion.

15
For the sake of correctness, in this section we include details about contract sets that each channel is supposed to handle. In order to understand our modular approach, their relations can be ignored. The reader can just assume that each subchannel can handle all contracts required for building all the longer channels.

16
Adding the dispute board to any functionality again works by wrapping functionality $$\mathcal {F}_x$$ and $$\mathcal {F}_{ DB }$$ within a wrapper $$\mathcal {W}_{x}$$.

17
This statement assumes that the only contract instances that can be opened in the multi-party channel are the ones whose code allows any user to enforce termination before time $$\gamma .\mathsf {validity}$$.

18
We assume a fixed ordering on peaceful execution requests.

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Title
Multi-party Virtual State Channels
Authors
Stefan Dziembowski
Lisa Eckey
Sebastian Faust
Julia Hesse
Kristina Hostáková