Evaluating Methods for the Identification of Off-Chain Transactions in the Lightning Network

Payment channels and off-chain transactions are used to address blockchain scalability. Those mechanisms rely on the blockchain proper, as the resolution mechanism. They allow for high transaction throughput due to the pure peer-to-peer nature of the transaction exchange that happens directly between the peers, without the involvement of the blockchain transactions. The transactions are not mediated through the blockchain but happen off-chain. The transactions in such overlay networks are not included in the blockchain, they nevertheless leave some data traces in a public ledger. We have used the Bitcoin mainnet and testnet blockchains together with the Lightning network node to explore what can be inferred from the underlying blockchain in the context of Lightning transactions, channel setup, and channel teardown. The main purpose of this study is to identify what methods, transaction signatures, and data can be used to understand the non-visible publicly off-chain transactions. We have proposed heuristics for identifying the setup and teardown transactions, quantified and analyzed the effectiveness of our proposed methods. Using the data from the Bitcoin blockchain, as well as the data from the Lightning network to link related information we have found when parsing the blockchain, we generate network graph representations showing the relationships between the Lightning network channels identified on the blockchain. This study is significant from the personal data and privacy perspectives, as well as from forensics. We have established that at least 75% of all P2WSH transactions are Lightning transactions, and some of the channels can be deduced from the blockchain analysis. The synthesized results demonstrate that our methods are viable for identifying a subset of transactions and that only partial topology of the payment channels can be obtained from the data left in the blockchai