The lightning network cross-chain exchange : a decentralized approach for peer to peer exchange across blockchain

Abstract

The development of decentralized blockchain-based systems has unlocked opportunity in untrusted systems. As more blockchains were created, however, a lack of interoperability became apparent. In response, centralized exchanges facilitating transactions across different blockchains emerged, reintroducing trusted third parties that blockchains were in part created to eliminate. Although blockchain capabilities were promising, their emergence resulted in embezzlement, hacks, and scandals that resulted in significant financial losses. A program allowing for peer to peer cross-chain exchanges would reestablish the decentralized foundation upon which blockchains were built and eliminate the risks associated with centralized exchanges. In this work we extend Lightning Network capabilities and develop a protocol enabling secure peer to peer channels to safely transact across blockchains. The system connects individuals using the Lightning Network's channel creation functions, and introduces four new channel commands: Price, Compare, Exchange, and Respond. Together, they integrate hashed timelock contracts that introduce peer to peer negotiations and exchange functionality from one blockchain to another. With this functionality in place, individuals gain more control over their own assets and rely less on third parties, reaffirming decentralization throughout the blockchain ecosystem and laying a new foundation for distributed systems to interact with less friction.