SoK: Layer-Two Blockchain Protocols

Blockchains have the potential to revolutionize markets andservices. However, they currently exhibit high latencies and fail to handletransaction loads comparable to those managed by traditional financialsystems.Layer-twoprotocols, built on top of (layer-one) blockchains,avoid disseminating every transaction to the whole network by exchang-ing authenticated transactionsoff-chain. Instead, they utilize the expen-sive and low-rate blockchain only as a recourse for disputes. The promiseof layer-two protocols is to complete off-chain transactions in sub-secondsrather than minutes or hours while retaining asset security, reducing feesand allowing blockchains to scale.We systematize the evolution of layer-two protocols over the period fromthe inception of cryptocurrencies in 2009 until today, structuring themultifaceted body of research on layer-two transactions. Categorizingthe research into payment and state channels, commit-chains and pro-tocols for refereed delegation, we provide a comparison of the protocolsand their properties. We provide a systematization of the associated syn-chronization and routing protocols along with their privacy and securityaspects. This Systematization of Knowledge (SoK) clears the layer-twofog, highlights the potential of layer-two solutions and identifies theirunsolved challenges, indicating propitious avenues of future work.