Bitmex Research has announced via Twitter that a penalty transaction has been detected on Lightning Network.
“ForkMonitor has detected a Lightning penalty transaction. Was this Bitcoin transaction from a few hours ago a Lightning Network penalty transaction sweeping away US$300? Is this justice or just an error?”
It refers to a transaction, recorded on Bitcoin’s public blockchain, related to the closure of a LN channel.
There are in fact four different types of LN channel closure transactions: collaborative, forced, fraudulent and penalty.
The latter occurs when a malicious node is punished for attempting a fraudulent forced closure.
With the penalty transaction a part of the funds of the malicious node is transferred to the node’s channel that was being attempted to defraud. In this specific case, the transfer was BTC 0.04989663, or just over $300.
During a normal collaborative closure of a LN channel, all participants agree to close the channel and adjust the channel’s final status on blockchain. For this to happen, all participants must provide their explicit authorization, with digital signature, for the cooperative closing transaction.
When these authorizations are missing, a non-cooperative closure will take place.
The first possibility is so-called forced closure, i.e. closure by one of the channel participants without the cooperation of the other party.
This closure is considered legitimate only if specific criteria are met that allow the channel to be closed correctly, but while with a collaborative closure both parties receive their funds immediately, with a forced closure the launcher has to wait hours, days or weeks to receive their funds – the other party receives them immediately.
However, there can also be a fraudulent closure attempt, i.e. an invalid unilateral closure of a channel. In such cases, if the invalid closure is not detected by the other party, the malicious node will get away with it and may steal some of the funds from the other party.
When the counterparty becomes aware of the theft, it will be able to carry out a penalty transaction, providing proof of the fraudulent closure, so that it can punish the node that carried it out.
In this specific case, the penalty has been relatively small, but it is by no means certain that thefts perpetrated in this way are limited to figures such as 0.05 BTC.