Bitcoin Layer Two Scaling Solutions: Lightening Payment Channels Network Comprehensive Review, Mechanisms, Challenges, Open Issues and Future Research Directions

Abstract

Blockchain technology era is triggered due to current advancement in the decentralized paradigms via facilitating secure collaboration among untrusted entities consequently superseding the necessity for the trusted third parties’ existence. Notwithstanding its potential, blockchain scalability faces severe limitations such as low throughput, high fees, and confirmation time latency. Several scaling solutions have been proposed, including layer one solutions that substantially require fundamentally amending blockchain underlying infrastructure resulted in further scalability complications. Layer two solutions, specifically Lightning Network, is a successful cryptographic layer built atop of the Bitcoin blockchain that aims to alleviate these implications by deporting transaction processing outside blockchain while ensuring security and consensus inherited from blockchain without compromising its infrastructure. Payment channels form the core of the lightning network, facilitating fast and secure transactions between participants. However, the network encounters substantial obstacles associated with transaction amounts that exceed the current channel capacity, leading to payment failures and limiting its effectiveness. Payment Channel Networks (PCN) have been risen as an evolved replacement that solves payment channel’s issues, seeking to enhance transaction throughput and reduce confirmation delays by solving limited capacities shortages. This paper thoroughly examines PCN efficiency impacting factors that hinder its current adoption growth and avoiding its widespread employment. Additionally, existing solutions are reviewed and categorized based on the PCN building architecture. The research concludes by outlining potential research avenues and future directions to improve the efficiency and practicality of the Lightning Network PCN. This research contribution aids the advent of blockchain layer two technology and participates in its integration into real-world applications.