Self-Balancing Semi-Hierarchical Payment Channel Networks for Central Bank Digital Currencies

We introduce a family of PCNs (Payment Channel Networks) characterized by a semi-hierarchical topology and a custom set of channel rebalancing strategies. This family exhibits two interesting benefits, if used as a platform for large-scale, instant, retail payment systems, such as CBDCs (Central Bank Digital Currencies): Technically, the solution offers state-of-the-art guarantees of fault-tolerance and integrity, while providing a latency and throughput comparable to centralized systems; from a business perspective, the solution fits the 3-tier architecture of the current banking ecosystem (central bank / commercial banks / retail users), assigning a pivotal role to the members of each tier. Furthermore, the cryptographic privacy of payments— typical of PCNs such as the public Lightning Network—is largely (possibly fully) retained. We simulate a scaled-down version of a hypothetical European CBDC, exploring the trade-offs among liquidity locked by market operators, payment success rate, throughput, latency, and load on the underpinning blockchain.

I. Introduction

Retail instant payment systems manage a very high load of transactions, in the order of – TPS (see Sect. IV-A). Centralized systems are often deployed to ingest and settle all such transactions timely. Performance is not all, though: In the case of CBDCs, further business and technical requirements are put into place, such as strong privacy guarantees, small or no fees for citizens, a cap on the amount of liquidity users can amass, and the possibility to be usable by unbanked people.