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Bitcoin’s Lightning Network Can Be A Big Threat To Your Funds

When it comes to being a fully fledged alternative to established currencies, Bitcoin’s scalability must be increased significantly. Since its inception, bitcoin has only been able to process seven transactions per second. This is a significant limitation. However, people are trading bitcoins through https://bitcoinstorm.io/, and the system is getting increasingly crowded as a result of its recent adoption by a number of organisations. Visa processes an average of 24,000 transactions per second and has the capability of processing up to 50,000 transactions per second.

The Lightning Network is a second layer of security that has been added to the Bitcoin network. According to predictions, it will be a game-changer in the development of cryptocurrencies. On top of that extra layer, a one-to-one channel is established between two parties, and it only exists for as long as it is required by the parties involved. Because the transactions are exclusively between two persons, it is supposed to be instantaneous and to be less expensive.

To construct a channel on the lightning network, two users must work together to create a multi-signature wallet. Both of them will be able to access the wallet through the use of their own private keys. They will both be required to deposit a specified quantity of bitcoin into the wallet at the same time. Following that, customers are allowed to do an unlimited number of transactions. In this way, the coins saved in the shared wallet are continually dispersed to the public. It is not until after a channel has been closed that the real allocation of monies is highlighted in the blockchain. The algorithm uses the most recently signed balance sheet to determine how much money should be distributed between the two parties. Until after the channel has been shut, no information about the starting amount or ending balance is broadcast to the main blockchain.

The Lightning Network has opened the door to a new class of cyber-attacks. The technology is still in the early stages of development, and the high expectations have not yet been satisfied.

Lightning Network Experiences Difficulties

1) It is not a long-term solution to the problem of Bitcoin’s transaction fees.

Because of the high transaction fees, the Lightning Network has been promoted as a possible solution. When it was created, it was done so with the understanding that increased fees are one of the primary consequences of bitcoin’s crowded network. The idea was to add this second layer in order to relieve some of the strain on the main blockchain.

However, it turned out that this was a misconception. The transaction costs are not the only thing that is affected by the backed-up network. Instead, the fees grew to become a significant portion of the overall cost of the Lightning Network.

The overall cost associated with implementing this technology can be broken down into two categories. The fee charged for opening and closing channels between two parties at the same time is the same as the fee charged for bitcoin transaction fees. There will be a separate routing fee deducted from funds that are moved within the channel. Because the network is still in its early stages and only a few nodes are currently using it, the routing is now set to zero. Thaddeus Dryja, one of the co-authors of the initial white paper, has predicted that the routing cost will remain low for an extended period of time due to the network’s ability to scale at this moment.

2) Leaving Nodes online for an extended period of time makes them vulnerable to attack.

In order for bitcoin’s Lightning Network to function properly, all nodes must be kept online at all times. It is only in this manner that payments can be sent and received. Despite the fact that cold storage of coins is the safest technique of storing them, this network does not permit it. Because of this necessity, the network is vulnerable to hacking and theft.

Going offline has ramifications for the Lightning Network, as you may imagine. Some gaps remain in this technology, making it vulnerable to attack. A channel is designed in such a way that one of the two parties from the channel can withdraw funds when the other party is not there. Fraudulent Channel Close is the term used to describe this type of theft. There are several options for objecting to the closure of a channel within a specified time period. However, the absence of one party for an extended period of time may result in the expiration of that term.

Because finances are concentrated in only a few nodes within the network, this network has become increasingly stiff as a result of the greater centralization that has occurred. If any node goes down, the user’s funds are locked up as a result. Furthermore, because every node is connected, a single server failure can cause widespread disruption throughout the network. Due to the fact that their funds will also be frozen, a huge number of users will experience inconvenience as a result of this.

3) It is not a solution to the Network Effects Problem that Bitcoin is experiencing.

The introduction of the Lightning Network was also expected to increase bitcoin’s chances of becoming a popular daily transactional medium of exchange. In order to make it easier for customers to make quick payments to businesses through a payment channel, the concept was developed. A channel makes it easier for customers to connect with the people with whom they do business on a daily basis, such as their landlord or e-commerce companies.

These mainstream transactions, on the other hand, are still a faraway fantasy. The number of trades has increased significantly in recent months. It will not be possible to evaluate the impact of the lightning network on fee reduction until the total number of transactions reaches its maximum capacity.

If the network is successful in speeding up transactions, the topic of how it will be widely used in Bitcoin will continue to be debated. It is well known that Bitcoin’s volatility is the most significant bottleneck in the cryptocurrency’s development. People are less likely to store their rent money in bitcoins if they are aware that they are doing so.

Attacks on the Bitcoin Lightning Network are a distinct possibility.

1) Bereavement

Lightning channels, which are used to conduct transactions, rely on a cryptographic technique known as hash time lock contracts (HTLCs). There is a possibility that the channel will be maxed out, at which point no payments will be accepted, preventing all cash from being transferred, and the channel will be terminated.

By flooding any power channel with micropayments, an attacker might cause bitcoins to become unresponsive. This assault will not allow him to fund another user at this time, but it may be utilised to prevent him from financing the competitor’s eligibility route in the future.

2) Inundate and loot

Because it is simple to carry out, it has the potential to become a common danger. An attacker can establish a channel with a victim and then direct the payments to another node under his control. He has the right to refuse to acknowledge that payments have been received. In other cases, he may employ codes to close all of the channels at the same time.

In order for some of the closing transactions to succeed, all of the channels must be closed concurrently. This ensures that when all of the channels are broadcasted to the on-chain Bitcoin addresses, some of the closing transactions will fail. The attacker publishes his trades on the blockchain in order to claim the funds with a greater fee while the funds are on the waiting list. It is essentially blackmailing a victim into addressing the situation in exchange for additional expenses.

3) Eclipse with a time dilation

It is also referred to as the “Sybil attack” in some circles. An attacker employs a variety of guises in order to confound the network. It has a negative impact on nodes that serve light clients. They make use of lightning wallets, which are designed to function with the least amount of data possible.

The attacker can choose to block hundreds of nodes by using fictitious identities as a strategy. He exhausts the nodes in such a way that victims are no longer linked to a legitimate user. It becomes incredibly simple for an attacker to isolate a node, preventing data from reaching it from the rest of the network.

Once the nodes have been ‘eclipsed,’ the attacker intentionally feeds transaction data to the node at a high pace for an extended period of time. He has the ability to close the Lightning channel with the victim at any time and steal their cash. The host node will not be aware of the channel’s closure transaction since the host node is now slowed down as a result of the attacker’s failure to provide data in a sufficient amount of time.

4) The use of pins

An attacker can prevent a channel’s closure transaction from taking place by broadcasting mem pools that are in conflict with one another. The mempool is a place where all valid transactions are stored until they are confirmed by the Bitcoin network.

When it comes to blockchain technology, the most significant issue is that there is no uniform pool that can keep pending transactions. There are just two possible outcomes: either the nodes receive transactions or they do not receive transactions. The distribution of peer-to-peer network connections will determine whether or not the procedure will be fluid and seamless. There is no such thing as a standard mem pool.

The attacker plans to establish a low fee on a closing transaction low enough that the transaction does not receive confirmation before the timelock on the channel expires, so avoiding confirmation. As a result, the victim’s channel is improperly closed, allowing monies to be stolen.

To make advantage of the Lightning Network, one needs be an experienced computer user. It grants more control to users, primarily miners, who hold the majority of the power in the primary Bitcoin blockchain—which requires extremely efficient and expensive equipment for miners to run the network. The Lightning Network makes the transaction process more feasible for ordinary people to participate in. You can have access to it using any laptop or personal computer. The goal of Bitcoin is to become a widely accepted payment method, which can be accomplished through the use of the Lightning Network.

Although it has many advantages, there are some security concerns that must be addressed before it can reach its full potential.

The lightning network has arisen as a notion that has the potential to alter the course of Bitcoin’s future. In order for bitcoin to be used as a “medium of exchange” on a daily basis, the Lightning Network, along with a few tweaks, is the most effective method of accomplishing this.

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Evangeline Christina is a Cyber Security Enthusiast, Security Blogger, Technical Editor, Certified Ethical Hacker, Author at Cyberspecial.net. Previously, he worked as a security news reporter in a reputed news agency.