Authentication

Transactions represent intention and thus require explicit consent. This is true both for on-chain transactions and for off-chain ones. A notable difference between the two is that while on-chain transactions' consent MUST be valid at the height at which the transaction had been included, this is not the case with the off-chain one. Any off-chain transaction can be used in an on-chain dispute, providing on-chain mutual agreement that a certainstate_hash had been valid at a certain round. This implies that consent of off-chain state MUST be validatable in the future. This document explains the different implications this has on channels.

We express consent in a provable and a cryptographically safe manner. From now on we will call it authentication. In the context of channels we can have both unilateral and mutual authentication, depending if just one or the two parties had expressed their consent. Assumption is if both parties agreed upon a transaction, it had been valid at least at some point of time.

Basic and generalized methods

Currently there are two different authentication methods:

• basic - a private key corresponding to the public key is being used for producing signatures upon the transaction binary. The account has a nonce and it is being bumped accordingly when the channel participant is the origin of the on-chain transaction. For off-chain ones nonce is not a part of the transaction itself and thus is neither checked nor bumped. This makes them validatable in the future as well.

• generalized - a smart contract is being attached to the account and is being used instead of private key. This smart contract has a state and it is updated by on-chain transactions. It is not updated by off-chain ones but since the authentication method MUST be valid in the future, a static version of the authentication method is used. More detailed explanation for Generalized Accounts can be found here.

Since a participant can upgrade their account from a basic to generalized at any time, we have three options relating to channel's opening transaction. In all cases, latest on-chain authentication is being used in the on-chain transactions and for the off-chain ones - the one being present at channel's creation time.

Participant is a basic account

If a participant is a basic account, the authentication method being used is as described above. Both on-chain and off-chain transactions are signed using the private key.

Participant upgrades their account after channel creation

If a participant upgrades their account after the channel_create_tx is being included, one MUST use the new authentication method for all on-chain transactions. Off-chain on the other hand are signed as if the account is being basic, as it was at channel creation time.

Participant is a generalized account at channel creation time

If a channel participant is a generalized account at a channel creation time, both on-chain and off-chain transactions are being validated according to this authentication method. There is still a difference, though: as authentication methods are expected to implement a replay attack protection, they are stateful. This is not the case with off-chain transaction authentication - they use whatever the state of the generalized account contract state was at channel creation time in a static manner.

A participant's authentication method for the channel can not be changed.

Sequential and parallel authentication

Authentication methods can be added in different order but they are validated in the order provided to the miner. Depending on the significance of the order in which authentications are to be checked, we have two different types:

• sequential - when authentications must be checked in the provided order or they might fail validation.

• parallel - when order is irrelevant to the validation process and checks can be performed in a concurrent manner.

For basic authentication always parallel behavior is used. For generalized authentication methods, different approaches are used depending on whether the transaction is meant to be processed on-chain or not:

• for on-chain transactions (channel_create, channel_deposit and etc.) thesequential behavior is used and each layer of meta transactions authenticates the outermost transaction it wraps. This is the standard behaviour used for all on-chain transactions.

• for off-chain transactions (namely channel_offchain) the parallel behaviour is used and all meta transactions authenticate the innermost transaction.