Collaborative Research: CNS Core: Small: Cooperation and Competition in Payment Channel Networks: Routing, Pricing, and Network Formation

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The scalability of blockchain-based cryptocurrencies such as Bitcoin and Ethereum hinders their wide adoption. This is due to the massive resource consumption required by their underlying consensus mechanisms for guaranteeing the unique and synchronized global state. To address this scalability issue, Payment Channel Networks (PCNs) have been proposed to enable instant and inexpensive payments without requiring expensive and slow blockchain transactions. However, the concept of PCN is still at its nascent stage, and its fundamental understanding is still lacking. The goal of this project is to conduct a comprehensive study of PCNs from optimization, game theoretic, and economic perspectives, by providing an advanced suite of algorithms, theories, and mechanisms for routing, pricing, and network formation in PCNs. This collaborative project with investigators from Colorado School of Mines and Arizona State University is expected to lay the algorithmic, theoretical, and economic foundation in PCNs by studying routing, pricing, and network formation problems from optimization, game theoretic, and economic perspectives. By weaving together techniques from optimization, game theory, and microeconomics, this project will yield several advances: 1) Insightful understanding about PCNs; 2) Realistic models of PCNs considering both balance constraints and expiry constraints; 3) Advanced algorithms for routing a payment in PCNs subject to path-dependent constraints; 4) Rigorous analytical models of balance allocation when multiple payment paths compete for the available balance; 5) Scientific theories about the impact of the participants' strategic behavior on the routing in PCNs and the formation of PCNs; 6) New economic approaches that provide guidelines on how to influence the participants in PCNs to make off-chain payments successful at the minimum cost.This project is expected to have significant impacts in many sectors: 1) Research community: giving rise to new frontiers in PCN research area and break new ground in the understanding PCNs; 2) Economy: expediting the adoption of blockchain-based cryptocurrencies and thus increase the economic competitiveness of the US; 3) Environment: reducing the energy consumption and carbon footprint caused by blockchain technology by encouraging more off-chain transactions; 4) Education: integrating this research into education through curriculum development, student development, K-12 outreach activities, and dissemination of research results; and 5) Society: raising awareness and interests in the blockchain and PCNs through disseminating the research results, partnerships with local companies, community meetups, and public talks.The outcome of this project, including source codes and dataset, will be maintained at the project website (https://people.mines.edu/djyang/research/project-pcn/) for at least five years, and will be made available to the public.This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.