Key Takeaways
- Fee Bumping: Anchor Outputs allow Lightning channel transactions to have their fees increased reliably.
- CPFP Mechanism: They use a Child Pays For Parent (CPFP) method for transaction confirmation.
- Enhanced Security: This feature prevents stuck channel closings, making the Lightning Network more secure.
What Are Anchor Outputs?
Anchor Outputs are a feature of the Bitcoin Lightning Network designed to make transactions more reliable. They allow a user to increase the fee on a transaction even after it has been broadcast to the network. This process, known as Child-Pays-for-Parent (CPFP), prevents important transactions like opening or closing a payment channel from getting stuck if the initial fee was set too low.
The mechanism works by giving each party in a channel a tiny, dedicated output, often just 330 sats (a satoshi is the smallest unit of Bitcoin, or BTC). Either person can then spend this "anchor" to create a new transaction with a higher fee. This new fee incentivizes miners to confirm the original transaction, securing the funds and keeping the network fluid.
Why were anchor outputs necessary for the Lightning Network?
Before anchor outputs, a channel-closing transaction with a low fee could get stuck for days during network congestion. This created a security risk, as a bad actor could potentially broadcast an older, more favorable channel state and steal funds while the other party waited.
The History of Anchor Outputs
Anchor Outputs were conceived to fix a critical flaw in early Lightning Network designs: transaction pinning. Without them, time-sensitive operations like channel closings could be stalled indefinitely by low fees. This vulnerability exposed users to potential fund loss if an old, incorrect channel state was broadcast and confirmed first.
The concept was formalized through a series of Bitcoin and Lightning Improvement Proposals. Developers collaborated to create a standardized method for Child-Pays-for-Parent (CPFP) fee bumping that worked for multi-party contracts. This replaced earlier, less reliable approaches and became a core part of the network's security model.
Their adoption marked a major step forward for the Lightning Network's usability and safety. By giving users control over transaction fees post-broadcast, anchor outputs built greater confidence in the system. This innovation was crucial for making the network a more practical and resilient platform for everyday Bitcoin payments.
How Anchor Outputs Are Used
In practice, anchor outputs are applied in several key scenarios to maintain the security and momentum of the Lightning Network.
- Cooperative Channel Closing: When two partners agree to close a channel, the transaction can stall if network fees rise. Either party can spend their dedicated 330-sat anchor output to create a child transaction, pushing the original closing transaction through for a quick settlement.
- Force-Closing a Channel: If a channel partner goes offline, a force-close is necessary. The anchor output allows the remaining party to attach a high-fee child transaction, guaranteeing the commitment transaction confirms on-chain before critical timelocks, like a CLTV expiry, run out.
- Resolving In-Flight Payments: Hashed Time-Locked Contracts (HTLCs) must be settled on-chain before their expiration. An anchor output on an HTLC-Success or Timeout transaction permits a fee bump, securing the funds and preventing them from being forfeited due to confirmation delays.
How Do Anchor Outputs Compare to Other Fee Bumping Methods?
Anchor Outputs are a specific implementation of Child-Pays-for-Parent (CPFP) built for the Lightning Network. While other fee-bumping techniques exist on the Bitcoin mainnet, anchor outputs are uniquely designed for the multi-party contract environment of payment channels, offering a distinct advantage in reliability.
- Child-Pays-for-Parent (CPFP): The general form of CPFP allows any unconfirmed transaction to be fee-bumped by spending one of its outputs. Anchor outputs are a specialized version of this, guaranteeing an output is available for each party to spend.
- Replace-by-Fee (RBF): This method lets a sender replace their own unconfirmed transaction with a new one that has a higher fee. It is not suitable for multi-party contracts like Lightning channels, as it would allow one party to change the transaction terms unilaterally.
The Future of Anchor Outputs
As the Lightning Network expands, anchor outputs will support more complex functions like channel splicing. This process permits dynamic resizing of payment channels without requiring on-chain closures, making the network more flexible and capital-efficient for users managing liquidity and routing payments across the Bitcoin network.
The design of anchor outputs is also advancing toward ephemeral anchors, a proposal removing the 330-sat dust output. This modification would reduce the on-chain footprint and transaction costs, making the Bitcoin Lightning Network more efficient and scalable for micropayments and other advanced contract applications.
Join The Money Grid
You can access the full potential of digital money through the Money Grid, a global payments network built on Bitcoin’s open foundation. Our infrastructure provides instant Bitcoin transfers over the Lightning Network, enterprise-grade node management, and developer toolkits for building the next generation of Bitcoin applications.
