EthNitro WhitePaper: Blockchain Payment Layer 3 Protocol
The EthNitro Protocol enables instantaneous, free transfer of any assets such as ETH, USD or stablecoin, not just Bitcoin like the lighting protocol.
My name is Phil Girard. During the day, I am a Software Engineer at Coinbase developing the MPC wallet. In my free time, I wrote a white paper to solve a big gap I noticed in blockchain scaling solutions: in-person payments (think VISA, MasterCard, Amex, Debit cards, cash…).
Skip to the WhitePaper
Link to the EthNitro WhitePaper
Why is EthNitro is needed?
The in-person card payment market is a 30 trillion $USD industry. For a crypto technology to take over this market, it needs to be instantaneous, peer-to-peer and cheap. Blockchains layer 1 and layer 2 have one fundamental limitation: consensus latency. Transaction irreversibility is inversely proportional to the number of blocks on top of a transaction. That’s why crypto exchanges typically wait for a couple minutes before giving access to crypto assets. This is not suitable for in-person payments.
What is EthNitro?
EthNitro is a layer 3 scaling solution that’s purpose built for fast and cheap in-person payments. EthNitro is backed by the security of the blockchain it’s deployed on.
EthNitro:
- Is fully decentralized (do not require a central trusted authority)
- Is secured by the blockchain on which it’s deployed and has the same level of security.
- Instant transfer of money between transacting parties.
- No transaction fees in peer-to-peer mode
- Optional transaction fees in multi-hop mode that are decoupled from the block space market.
- Scales infinitely, there could be 8 billion humans (or machines) doing 10 transactions each at the same exact moment without putting any load on the blockchain.
The EthNitro protocol is an adapted version of the Bitcoin Lightning protocol, but for smart contract enabled blockchains. Smart contracts enable optimization and simplification that makes this even more powerful. EthNitro Protocol enables transfer of any assets such as USD, stablecoin or any ERC-20 token, not just Bitcoin like the lighting protocol.
How does EthNitro work?
EthNitro decouples payments from updating the chain’s state. There’s no need to broadcast every payment transaction to the blockchain. What if all the transactions between 2 entities over a large period (think months or years) could be compressed into 1 singular transaction that summarize the balance at the end.
This is what EthNitro protocol does:
At the heart of the EthNitro Protocol there’s payment channels. Payment channels are smart contracts that locks the balance of both entities that wants to transact. Let’s say Alice and Bob want to do several transactions between each other. Alice and Bob both lock 1000$ in the smart contract for a total of 2000$ on their favorite blockchain by paying a blockchain transaction fee. Then instead of doing blockchain transactions every time they need to exchange money, they create a peer-to-peer cryptographic proofs that represents a new distribution of the locked balance. Then at any time, any of the 2 entities can post to the blockchain the latest state to close the payment channel and distribute this final balance.
The cryptographic exchanges are done off chain over any type of connection (TCP, Bluetooth, NFC, ... ).
Multi-Hop Mode
There’s one limit to this model. Alice needs to open a payment channel with each entity she wants to transaction with. It’s expensive to open a payment channel.
The solution is the EthNitro multi-hop payment mode. In this mode, Alice reuses already open payment channels to route a payment to Bob without ever touching the blockchain.
Let’s say Alice wants to pay Bob, the grocery store and the electronic store, but she doesn’t have a direct payment channel with them. However, there’s a node called “Ethereum Wallet Provider” that everybody has a payment channel open with. Alice can use the payment channel she has with the “Ethereum Wallet Provider” to route all the payments for free.
This can be generalized to multiple nodes in a graph and Alice can choose an optimal path to send money to Bob:
The “Optimal path” can be either the path with less fees (node could charge fees for the service of routing the payment), the path with less hop, the path with most liquidity, … it’s up to Alice and Bob to decide which path they want to use. The bitcoin lightning networks has tremendously reduced the fees by doing transactions this way.
The big advantage of using the EthNitro protocol with a smart contract enabled blockchain is that you can distribute any type of assets such as ERC-20. This enables permissionless stable coin payments (USD, CAD, …) at a massive scale.
WhitePaper
EthNitro: Blockchain Payment Layer 3 Protocol
Protocol Implementation
This is the progress so far. I am looking for folks who wants to create a community around this protocol. The white paper needs peer reviews by security researchers. The end goal would be to create an EIP and code a client.
Hit me up on twitter, LinkedIn, or by email (philippe.girard5@gmail.com)
Cheers 🙌
