By using hierarchical channels, Lightning may overcome scalability limitations by enabling fast and flexible channel sizing off-chain.
Developers are exploring using hierarchical channels to help speed up the Lightning Network (LN) and make it more scalable. pyramidal channels Allowing flexible off-chain channel sizing, enabling fast and cheap sizing, without on-chain transactions that create delays and costs. In turn, changing the volume of on-chain channels can cause delays of several months and increase fees. Current proposals for off-chain channel sizing include setting up a channel factory or CoinPool and exchanging capacity between channels within the same factory or pool. Hierarchical channels allow channels to be flexibly sized off-chain without having to exchange capacity within a limited group of users. Hierarchical channels allow the creation of a binary channel with two master outputs, one for each end, plus zero or more time-locked contract (HTLC) outputs.
Each output from a hierarchical channel funds another channel that can be viewed as the root of a tree outside the chain of outputs where the leaves are owned by a single user. Parties can use hashed timelock (HTLC) nodes to exchange bitcoins, connecting their HTLCs to HTLCs in other (potentially hierarchical) channels, and thus making payments over the LN.
With hierarchical channels, the developers propose to solve two problems. First, it allows flexible, near-instant and off-chain volume change, which is similar to the Lightning Network’s goal of allowing near-instant off-chain payments. Second, hierarchical channels can be used by normal users who can send and receive bitcoin in a watchtower-free manner while dedicated users can use all of their channel capacity to direct payments, even when the average user is inactive. Hierarchical channels will enable ordinary users to operate in a watchtower-free manner without being stranded with any capital.
Implementing hierarchical channels can help overcome one of the biggest limitations of the Lightning Network, which is its scalability. Hierarchical channels are expected to support efficient Lightning Network payments without creating additional delays, adding costs, and limiting scalability. The development of hierarchical channels does not require any changes to the underlying Bitcoin protocol.
The developers suggest that hierarchical channels are an effective way to enable flexible, off-chain channel sizing within the Lightning Network. The ability to quickly and efficiently scale channels will enable the Lightning Network to continue to expand and meet the growing demand for more efficient payment channels.