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Source: arxiv.org ยท
As Lightning network payments are neither broadcasted nor publicly stored.
Thus LN has been seen not only as scalability but also as privacy solution for
Bitcoin. The protocol guarantees that only the latest channel state can be
confirmed on channel closure. LN nodes gossip about channels available for
routing and their total capacities. To issue a (multi-hop) payment, the sender
creates a route based on its local knowledge of the graph. As local channel
balances are not public, payments often fail due to insufficient balance at an
intermediary hop. In that case, the payment is attempted along multiple routes
until it succeeds. This constitutes a privacy-efficiency tradeoff: hidden
balances improve privacy but hinder routing efficiency. In this work, we show
that an attacker can easily discover channel balances using probing. This takes
under a minute per channel and requires moderate capital commitment and no
expenditures. We describe the algorithm and test our proof-of-concept
implementation on Bitcoin's testnet. We argue that LN's balance between privacy
and routing efficiency is suboptimal: channel balances are neither well
protected nor utilized. We outline two ways for LN to evolve in respect to this
issue. To emphasize privacy, we propose a modification of error handling that
hides details of the erring channel from the sending node. This would break our
probing technique but make routing failures more common, as the sender would
not know which channel from the attempted route has failed. To improve
efficiency, we propose a new API call that would let the sender query balances
of channels that it is not a party of. We argue that combining these approaches
can help LN take the best of both worlds: hide private data when feasible, and
utilize public data for higher routing efficiency.

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