From the So-Obvious-No-one-Has-Bothered-to-Write-It-Down-Department: tl;dr: Micropayment channels can be extended to arbitrary numbers of parties using a nearly completley untrusted hub, greatly decreasing transaction fees and greatly increasing the maximum number of financial transactions per second that Bitcoin can support.

So a micropayment channel enables a payor to incrementally pay a payee by first locking a deposit of Bitcoins in a scriptPubKey of the following form: IF <timeout> CHECKLOCKTIMEVERIFY OP_DROP ELSE <payee> CHECKSIGVERIFY ENDIF <payor> CHECKSIGVERIFY (obviously many other forms are possible, e.g. multisig) Once the funds are confirmed, creating txout1, the payor creates transactions spending txout1 sending some fraction of the txout value to the payee and gives that half-signed transaction to the payee. Each time the payor wants to send more money to the payee they sign a new half-signed transaction double-spending the previous one. When the payee is satisfied they can close the channel by signing the most recent, highest value, tx with their key, thus making it valid. If the payee vanishes the payor can get all the funds back once the timeout is reached using just their key. Since confirmation is controlled by the payee once the initial deposit confirms subsequent increases in funds sent happen instantly in that the payor can not double-spend the input until the timeout is reached. (there's another formulation from Jeremy Spilman that can be almost implemented right now using a signed refund transaction, however it is vulnerable to transaction mutability) Hub-and-Spoke Payments ====================== Using a nearly completely untrusted hub we can allow any number of parties to mutually send and receive Bitcoins instantly with near-zero transaction fees. Each participant creates one or two micropayment channels with the hub; for Alice to send Bob some funds Alice first sends the funds to the hub in some small increment, the hub sends the funds to Bob, and finally the hub gives proof of that send to Alice. The incremental amount of Bitcoins sent can be set arbitrarily low, limited only by bandwidth and CPU time, and Bob does not necessarily need to actually be online. The worst that the hub can do is leave user's funds locked until the timeout expires. Multiple Hubs ============= Of course, hubs can in turn send to each other, again in a trustless manner; multiple hops could act as a onion-style privacy scheme. The micropayments could also use an additional chaum token layer for privacy, although note that the k-anonymity set involves a trade-off between privacy and total # of Bitcoins that could be stolen by the hub. Of course, in general the micropayment hub breaks the linkage between payor and payee, with respect to the data available from the blockchain. Capital Requirements ==================== A business disadvantage with a hub-and-spoke system is that it ties up capital, creating a tradeoff between fees saved and Bitcoins tied up. How exactly to handle this is a business decision - for instance opening the micropayment channel could involve a small initial payment to account fo rthe time-value-of-money. Embedded consensus/Colored coins ================================ Note how many embedded consensus schemes like colored coins are compatible with micropayment channels. (though have fun figuring out who deserves the dividends!) -- 'peter'[:-1]@petertodd.org 000000000000000012367d385ad11358a4a1eee86cf8ebe06a76add36dfb4622

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