If A and B have a Lightning Network channel，it was opened with a funding transaction (say, 1BTC from both sides for 2BTC total). After A has spent some time transacting with B, the balance of the balance of the channel will be spent and then the channel will be closed with a confirmation transaction. Why doesn't the Lightning Network support additional funding transactions within this existing channel so that A and B can continue use this channel for transactions?
Any additional funding transactions would not be covered by older commitment transactions which can result in the loss of funds. Older commitment transactions will not contain inputs that spend from the new funding transaction. The funds sent in the second funding transaction require B to sign a spending transaction, and if B refuses, then A has no way to get those funds back should an older commitment transaction be broadcast.
The total capacity of a channel cannot be increased since the funds are held in a single UTXO (unspent transaction output). What can be done, however, is to rebalance the channel from within the Lightning Network itself, so A can use it again.
Let's assume the balance of the channel is now
0 BTC for A and
2 BTC for B, so A cannot send payments through the channel anymore. That makes A want to fund the channel so he can spend more.
A can do this by asking a payment to be sent to him through LN that will effectively re-balance the channel to (say)
1 BTC for A and
1 BTC for B. This funding payment needs to originate from another Lightning node, for instance a Lightning-enabled exchange where A pays fiat (or other crypto) and gets
1 BTC sent to his Lightning node.
There is a way to increase the capacity of the payment channel. Dynamic Channel Deposit and Withdraw for Lightning Networks
If A want to add 0.5 BTC to the channel, he can propose to create a new funding transaction which spent the old funding and another UTXO from A. The new Funding transaction can be created by following steps.
- Creating a new Funding Transaction
- Creating a pair of new Commitment Transactions (C2a and C2b), containing the corresponding RD2a and RD2b
- Signing the new Commitment Transactions
- Exchanging signatures for new Commitment Transactions
- Signing a new Funding Transaction
- Exchanging signatures for the new Funding Transaction
- Broadcasting the new Funding Transaction