The repeated invalidation of prior state to agree on a new state builds a long chain of update transactions that will eventually be terminated by the latest settlement transaction. However, this has a major disadvantage: should we want to settle, we would have to replay the entire chain of updates on the blockchain. At that point we could have simply performed the entire protocol on-chain. The key insight in eltoo is that we can skip intermediate updates, basically connecting the final update transaction to the contract creation. In order to enable this short-circuiting of updates, we propose a new
SIGHASH_NOINPUT, which allows a transaction input to be bound to any transaction output with a matching script. Since all output scripts of prior update-transaction outputs match later input scripts, we can bind a later update to any prior update, allowing us to skip any number of intermediate updates. The paper contains the full construction of the protocol, including the details on how the scripts are built.