Ultimate Resource For Lightning Network Updates (#GotBitcoin?)
The Lightning Network on Bitcoin passed a fresh milestone this week, taking its overall capacity to over 600 BTC ($2 million) for the first time. Lightning Network Reaches Marathon 600 BTC Capacity
Data from monitoring resource 1ML.com confirmed the achievement, which occurred early January 30. Lightning Network Reaches Marathon 600 BTC Capacity (#GotBitcoin?)
1 YEAR, $2 MILLION
The previous day proved to be particularly successful for the Bitcoin mainnet Lightning implementation, capacity growing by 21 BTC in 24 hours. Now with a total capacity of 601 BTC ($2,053,000), Lightning has added 15 percent over the past month.
Other metrics also showed improvements. The total node count now sits at 5768, the equivalent of a 16 percent monthly rise, while there are now 22,750 channels – 36 percent more than a month ago.
The news coincides with the increasing adoption of the technology. As Bitcoinist reported, an ongoing awareness campaign, Lightning Torch, aims to pass a transaction around the network, with each user adding to its size.
Beyond community-initiated projects, bonafide user-ready apps continue to bridge the gap between Lightning’s technical beginnings and mainstream understanding of its uses.
Bitcoinist released a two-part guide to the emerging ecosystem this week.
Lightning’s technical improvements go beyond bolstering Bitcoin’s ability to scale to meet the requirements of a significant influx of future users.
As Bitcoinist revealed this week, faster, cheaper transactions mean Lightning allows Bitcoin to become more effective than some altcoins designed to replace it.
Even with its limited reach, Lightning still processes more payments than altcoins at payments service Bitrefill, the company’s CEO said.
Taking Lightning to an altogether different audience this month meanwhile was Coin Center, which demonstrated the technology to the US Congress in the form of micro-transactions. The demo was made as part of a wider presentation on cryptocurrency by the group at the Congressional Blockchain Caucus.
“We were able to show the process of sending tiny amounts of bitcoin from our phones to the vending machine and watch it dispense candy in real time. The network fees were 1 satoshi per transaction,” Coin Center wrote in a follow-up blog post.
What Do You Think About The Lightning Network’s Capacity Increase?
Bitcoin’s Dropping Lightning Capacity Might Not Be a Bad Thing
The lightning network is supposed to be bitcoin’s superhero, taking the cryptocurrency to new heights by tackling its toughest and most obvious problem: if cryptocurrency is ever going to “go mainstream,” it needs to support a million times more transactions than it currently does – which is no easy feat.
But by the looks of this graph, lightning appears to be losing momentum. The amount of funds locked up in the layer-two network looks to be decreasing, seeming to indicate that fewer people are using it as a payment method. A lightning “channel” is like a gateway to the rest of the network, allowing a user to send a payment to any other user.
While lightning is still considered “beta” software, and thus risky to use, bitcoiners have been so enthusiastic about it and using it anyway, for games and beyond, chanting the unofficial slogan “reckless.” As lightning’s capacity increased rapidly over its first year, devotees cheered it on social media.
The catch is that, while this number is decreasing, lightning use might actually still be increasing because of increased privacy of lightning channels and other channel optimizations.
“There’s no way of knowing the capacity in [the lightning network]. We can only know the public channels’ capacity, not private,” Roy Sheinfeld, CEO of Breez told CoinDesk.
And at least one company says that – at least in their experience – lightning payments are picking up.
“We are doing increasing dollar value volumes on the lightning network. What I am seeing is the price going up and thus people need less coins locked up in channels to maintain spending power,” FastBitcoins MD Danny Brewster told CoinDesk.
A Tale Of Two Nodes
So, while so far watching this number has been a spectator sport — football for tech geeks — it might not be for much longer. This number will grow harder to track over time.
That’s because many lightning wallets do not advertise whether their channels exist to the rest of the network, by default.
Under the hood, there are “advertised” channels which advertise their existence to the rest of the lightning network and “non-advertised” channels which don’t. Normal channels, used by everyday users who just want to buy pizza and draw dicks online with lightning, don’t need to be advertised.
“Many wallets in the past few months have been released which default to non-advertised channels, these channels don’t show up on any public metrics, so relying on the public metrics alone only really shows half of the picture,” Lightning Labs CTO Laolu Osuntokun told CoinDesk.
Generally, advertised channels only need to be used by routing nodes, so the sturdier nodes that get payments from one person to another and need to be online all the time.
Zap creator Jack Mallers argued “it’s only responsible” that “anyone who isn’t a routing node [uses] private [“non-advertised”] channels.”
Some go as far as to argue that the public capacity is a “useless indicator” because it doesn’t capture all – or maybe even most – of the money in the lightning network.
Because more apps have been starting to follow these best practices, Sheinfeld guesses that “most” channels are private, noting that his wallet Breez has opened “thousands” of private channels just in the last couple of months alone.
“Breez opened thousands of private channels in the last two months. Lightning Labs auto-pilot also opens private channels,” he said.
This is one reason why many developers see lightning as providing more privacy than on-chain bitcoin transactions. While bitcoin has a reputation for giving users anonymity, transactions are actually public. Lightning hides a bit more of the transaction details.
“If a regular bitcoin transaction is similar to uploading your bank statement to a public web site, a lightning network transaction is similar to showing each merchant you pay how much money you have in one specific compartment of your wallet. You’re still revealing some information, but much less,” as lightning startup SuredBits wrote.
Another reason the capacity is decreasing is because some entities are closing down lightning channels that were wasteful.
“Based on my knowledge, the decrease in channels is simply node operators being rational by closing out channels that have been open for some time, but which don’t have notable forwarding activity,” Osuntokun said.
For instance, there’s one famous and mysterious anonymous lightning user by the name of LNBIG who has opened many lightning channels. They initially debuted by pouring 300 bitcoin into the lightning network, giving new meaning to lightning’s “reckless” catchphrase.
“At the beginning of my activity, I opened many channels in the hope that they will be used (and due to the imperfection of the autopilot),” the person behind LNBIG told CoinDesk.
But, the secretive developer said, those channels weren’t really used much at all. They were just open and sitting there.
“But time has shown that many channels have not been used once for two to four months, for example, and the funds in them are nonetheless blocked,” LNBIG continued.
The funds are “blocked,” as LNBIG puts it, because of the way lightning works. A lightning “channel” is like a gateway to the rest of the network, allowing a user to send a payment to any other user. But when someone opens a “channel” with someone else and doesn’t use it, then other people can’t use that gateway.
So, it makes sense to free up that capacity and wait to see if a new channel opens want to use the capacity, which is exactly what LNBIG decided to do.
LNBIG posted a Twitter poll before following through with closing these channels, arguing that the only downside would be the “psychological effect” that lightning’s capacity would fall down to 825 bitcoin.
As the decrease in lightning’s capacity shows, Twitter encouraged LNBIG to follow through.
Bitfinex Allows Lightning Network Shopping on Bitrefill With Bitcoin
Cryptocurrency exchange Bitfinex and crypto store Bitrefill partnered to allow the trading platform’s clients to shop with Bitcoin (BTC) over the Lightning Network.
According to a press release published on Dec. 4, Bitfinex users can instantly pay for a variety of services with Bitcoin that they hold on the exchange as of today.
A Lightning B2B Settlement System
Per the press release, the companies attribute the development to the “world’s first dynamic B2B settlement process over the Lightning Network.” The announcement builds on recent news that Bitfinex enabled Bitcoin Lightning Network transactions and that those using it for deposits and withdrawals will pay almost no fees. The companies explained that setting up such a system required some tinkering:
“Bitfinex and Bitrefill utilize customized versions of Lightning to open large channels together, exceeding the default limits in place, but allowing better flow and reliability to users.”
The collaboration between the two firms will allow the exchange’s customers to buy over 2,000 different prepaid vouchers with Bitcoin. The vouchers can cover the costs of services and products relevant to gaming, dining, entertainment, travel and more.
Lightning Adoption By Exchanges Is Essential
When Bitfinex users buy products from Bitrefill, the system put in place by the two firms instantly settles the payments over Lightning Network. Bitrefill chief commercial officer John Carvalho explained why he believes Lightning adoption among exchanges is important and where he thinks it will lead:
“We believe that getting Bitcoin exchanges on to the Lightning Network early is integral to preparing for the next wave of adoption and building out a parallel economy for Bitcoin. […] We will continue to work closely with Bitfinex and other businesses to develop Lightning solutions and products that make living on crypto a reality, eventually removing dependability on fiat rails.”
The Lightning Network sees increasing traction and adoption in the cryptocurrency space, with many placing high hopes on its potential to make Bitcoin a viable payment tool.
As Cointelegraph reported last month, bond market veteran Nik Bhatia says that Lightning Network convinced him of Bitcoin’s potential. Also in November, Bitcoin payments app Fold rolled out support for home-sharing giant Airbnb, effectively enabling to book stays included in the service with Lightning Network.
‘Multi-Part’ Payments Could Bring Bigger Bitcoin Sums To Lightning Network
Bitcoin tech startup Blockstream said its c-lightning software team is the first to release a working version of “multi-part payments.”
While the name, c-lightning v0.8.0, is a mouthful, it’s a big improvement for the user experience of the lightning network, a new layer that’s probably bitcoin’s best shot at scaling to support a larger number of payments. The change updates the plumbing of lightning network payments so users can send larger lightning payments, with a much smaller risk of them failing.
“The user experience of lightning clients is a topic that is brought up often, and we are working actively on improving the status quo, together with the teams working on other lightning implementations. Our goal is to make using lightning as easy as using an on-chain wallet,” lightning developer Christian Decker explains in a blog post.
Right now, it’s not as easy. For one thing, there’s a chance there won’t be enough liquidity in the network to support the transaction, especially for larger payments. Say a user sends 0.5 bitcoin across the network. Under the hood, it bounces from one node to the next until it reaches its destination. Each of those nodes needs to have 0.5 bitcoins that it can pass on to the next node.
If one of the nodes in the path doesn’t have enough bitcoin, the user is out of luck and the payment fails.
Multi-part payments tackle this problem by making it possible to break a payment into smaller pieces that are easier to send across the network, since a user can combine bitcoin from multiple channels they have open to send payments.
“Multi-part payments allow a lightning node to bundle the capacity in all its channels when making a payment, making larger payments than any individual channel on its own would allow,” Decker writes. “This greatly reduces the headache of managing how many channels to open, and how to allocate funds to them, since you can now simply combine them as and when necessary.”
Notably, while this release supports sending these types of payments, it still isn’t possible to receive them. That functionality is still being worked on.
Decker claims the code change also “greatly increases” the resiliency of the entire payment network. Since users sending payments are less likely to have to transact with a large node, that’s a “single point of failure.”
“The capacity of the largest channel used to be the limiting factor when performing payments. As such, users were incentivised to open a single channel, with as many funds as possible, to a node that was as stable as possible. This led to users rating the reliability of nodes before opening a channel with them, since that node would now be their single point of failure, i.e., if that node was down, they couldn’t do much. With multi-part payments, users can now open multiple channels to multiple nodes, while at the same time being sure that the funds will be there when they need it. For the network, this means more connectivity and better resilience against the threat of big nodes suddenly disappearing.”
Blockstream says the technology will be expanded upon in future releases.
Privacy And Scalability of Lightning Network Lower Than Expected: Report
Researchers from cryptocurrency exchange BitMEX have suggested that the privacy and scalability benefits of Bitcoin’s (BTC) implementation of the Lightning Network are less than expected.
A report published by BitMEX on Jan. 11 illustrates the researchers’ efforts to determine the growth of the Lightning Network by trying to extrapolate information about private payment channels from readily available data.
The team focused on non-cooperative channel closures and they suggest that — since the network started its activity — about 60,000 such transactions took place.
A non-cooperative channel closure happens when a Lightning Network node initiates the closure of a payment channel without directly communicating with the node that the channel is linked to.
Non-cooperative Channel Closures More Prevalent Than Expected
Non-cooperative channel closures are more easily tracked and recognized, and they have to be confirmed in blocks on the blockchain. Due to these characteristics, BitMEX researchers drew the following conclusion from the higher-than-anticipated number of such transactions:
“The fact that non-cooperative closures are more common than many thought, means the privacy and scalability benefits of lightning are lower than many expected too. However, […] as users learn more about how to use the lightning network and lightning wallets improve, the prevalence of non-cooperative closures could fall.”
The report notes that researchers initially expected to find 30,000 non-cooperative channel closures but instead discovered the aforementioned 60,000. More liberal estimates place the number of such closures at over 90,000, cumulatively spending 1,405 BTC.
Lightning Attacks Are Rare
The report also explains that in some instances, non-cooperative channel closures see a party attempt to steal the funds, which is called a breach closure. A breach closure can be followed by a penalty transaction if the attempted theft is detected and the other party claims all the funds. Attempts to steal funds in such ways are quite rare, according to the report:
“Our analysis shows that these penalty transactions are very rare. Only 0.30% of non-cooperative closures result in a penalty transaction or 0.22% by value.”
The Lightning Network, while promising according to many, is still largely experimental. As Cointelegraph reported in early December 2019, a Redditor “lost” four Bitcoins on the Lightning Network and later published advice based on his experience. He also suggested that users interested in the system should thoroughly research how the system works before using it to send significant amounts of Bitcoin.
Still, Lightning’s promise of nearly-feeless instant transactions has the approval of many in the cryptocurrency community. In November 2019, bond market veteran Nik Bhatia said that with Lightning, Bitcoin has become an unprecedented asset by combining a store of value with medium-of-exchange scale and speed.
Grasping Lightning: Mapping The Key Players In Bitcoin’s Next Phase
You might have heard of bitcoin’s “lightning network,” but don’t know what’s going on with it right now. Who are the mysterious big players behind this magical technology that allegedly solves all of bitcoin’s problems?
Lightning is one of the most promising technologies in the space right now, even drawing in Square and Twitter CEO Jack Dorsey. Given current technical constraints, blockchains don’t support many users, let alone the world’s population. Lightning could multiply the transactions possible, while making transactions faster (like a millisecond) and cheaper.
Nerds have eagerly been putting the technology to the test. A range of lightning games have come out, such as one channeling the hit game Fortnite. And it’s possible to buy Domino’s pizza and Amazon gift cards with this new internet money.
But, while yes, lightning sort of works, there’s a lot of work to be done. The technology is still risky and not easy to use. Although the theory’s there, how it plays out in practice remains to be seen.
Here’s a breakdown of the big players across the globe tinkering with the underlying technology every day, trying to improve it so it doesn’t “suck” anymore.
Bringing The Idea To Life
The lowest-level coders are working on so-called lightning implementations, the code which puts the payment network into practice. Each has its own approach to the network.
The best-known of these is LND, created by Lightning Labs, with CEO Elizabeth Stark at the helm. Dorsey invested in the firm early in 2018.
Behind-the-scenes, there are many more developers, working on implementations such as Blockstream’s c-lightning and France-based Acinq’s Eclair. While the developers behind each of these softwares tend to focus on different features and they’re written in different programming languages, all three are interoperable, meaning transactions can be sent between them with no bumps.
To this day, developers from these three groups continue to hold bi-weekly IRC chats to discuss future changes to the protocol specifications.
To confuse matters further, there are still other lightning implementations on the fringe. With a decentralized payment network, anyone can make their own version.
Rust-lightning is a security-minded implementation headed by Square Crypto engineer Matt Corallo, who’s been writing bitcoin code since he was a teenager. Japan-based startup Nayuta has built a lightning implementation specifically geared toward the Internet of Things.
As more and more devices, whether toasters or TVs, connect to the internet and gather data, these same devices may need to make tiny payments too, to say, automatically charge an electric car, the company contends. And bitcoin’s lightning may be the only payment system in the world that allows for payments that small.
None of these coders is flashy. They put out announcements about how they’ve successfully created “multi-path payments” or “watchtowers” from time to time. While clouded in esoteric tech-speak, these announcements essentially mean that the technology is improving, and hopefully getting easier to use.
This Is All Happening In The Background. But What About Actually Using Lightning, Even If It’s Risky?
Right now it’s not easy. Most of the most-used wallets out there, such as Coinbase and Blockchain.info, don’t support lightning payments yet, because the technology is still experimental. (There are exceptions, such as Electrum, a long-standing light-client wallet which added support for lightning last year.)
For the most part, a parallel ecosystem of daredevil developers have been creating completely separate bitcoin wallets that allow users to send and receive lightning payments.
There’s a lot to choose from. Acinq’s mobile wallet Phoenix is one of the oldest and most-employed non-custodial wallets, meaning users have full control of their private keys.
Lightning desktop wallet Zap started as a one-person side project by young developer Jack Mallers. One feature of the wallet that power users love is that it hooks up with what’s known as a “bitcoin node.” This stores every on-chain bitcoin transaction made in its 11 years, the most secure way of using bitcoin. Zap lets you make lightning transactions from your smartphone, while running one of these clunky full nodes at home.
Wallets like Breez and BlueWallet are taking different approaches to building a slicker interface for lightning.
And that’s just the tip of the lighting bolt.
All this assumes the user already has bitcoin.
If they do, they can use one of these wallets to send to a lightning “channel,” like a separate specialized bitcoin account secured by a smart contract that lets you start making lightning payments.
But, if users want to buy lightning-powered bitcoins directly with USD, skipping a step, they enter a highly experimental realm.
Most other major exchanges, such as Binance, Coinbase, and Huobi, don’t have that capability yet while the technology is still maturing. BTCC, for example, told CoinDesk that “[m]ost people do not understand Lightning Network at present. We will support Lightning Network a bit later to acquire more user adoption.”
Exchange Bitfinex is the largest exchange so far to adopt lightning, meaning users can deposit or withdraw payments in the experimental form of the digital currency. But this makes up a small overall percentage of its transactions so far. Meanwhile, Breez lets users in 35 countries buy and sell lightning directly with a credit card.
While adoption across bitcoin companies is minimal for now, the goal for many of these players on the vanguard fringe of bitcoin is that once lightning is mature enough, most bitcoin wallets and exchanges will absorb it.
If UX challenges don’t get in the way, it could one day become the dominant method of bitcoin payments. It offers cheaper and faster payments after all.
App Connects Bitcoin And Lightning Payments Directly To Your Bank Account
The Strike app hopes to encourage mass adoption of Bitcoin and the Lightning Network by connecting it directly to a bank account or debit card.
Jack Mallers, the developer of the Zap Lightning Wallet, announced on Thursday his new app for iPhone, Android and Chrome, which allows users to send and receive Bitcoin (BTC) and Lightning Network payments directly from and to a bank account.
Strike, which has now entered the public beta phase, enables interaction with the Bitcoin and Lightning protocols with no wallet, seed, channels, liquidity or white papers, while Know Your Customer protocols are kept to a bare minimum.
Mallers wants Bitcoin to reach mainstream adoption. To this end, he created Zap in 2018 — one of the first desktop wallets making the features of the Lightning Network accessible through a user-friendly interface.
Furthermore, as Cointelegraph reported, last autumn Mallers announced his intent to develop a platform offering instant debit card Bitcoin purchases via the Lightning Network. Strike is the result of that work and goes some way beyond its original remit.
While Strike does let one purchase Bitcoin with a debit card or bank account, it can also be used for remittances and personal payments, micropayments and both online and offline purchases.
It also comes with a strike.me social media profile, which lets users accept free payments from anywhere in the world via an online QR code. Payments received are instantly converted into fiat.
Keep Your Confidentiality
One of Mallers’ key objectives was to meet regulations while reducing KYC and Anti-Money Laundering procedures, saying:
“The last thing I want is to introduce a new demographic of users to Bitcoin, only to have them treated as criminals as soon as they download Strike.”
Rather than accepting the commonly utilized belt and braces approach, he set about meeting lawyers and educating regulators to work out how much KYC/AML was “good enough.”
With the average payment value in the private beta being around $27, there is little need for mass collection of information and identification. Most users of the app will only need to enter a name and phone number.
Some states are excluded, and Strike will not initially be available in those regions.
Just The Beginning
Mallers has big plans for the future of Strike. There is reportedly a Strike Visa debit card in the works, along with a rewards program through partnered merchants and referrals for friends and family.
Strike has also been working to provide merchants with tools to process contactless payments, and an improved e-commerce system is also being rolled out.
Lightning Vulnerability Discovered; LND Node Operators Urged To Upgrade ASAP
A vulnerability in LND versions 0.10.x and below has been disclosed to the Lightning Labs team, according to engineer Conner Fromknecht in the Lightning Network developer channel Thursday. In light of the disclosure, the firm is urging node operators to upgrade to versions 0.11.0 or higher as soon as possible.
* No known exploitations of the vulnerability have been found to date, but “circumstances surrounding the discovery resulted in a compressed disclosure timeline,” Fromknecht said.
* The vulnerability was “partially” disclosed with a detailed publishing of the findings promised Oct. 20.
* Lightning Labs – one of three major implementations of the Lightning Network – released its newest v0.11.1-beta on Oct. 1.
* Lightning Labs did not respond immediately to a request for comment.
Bitcoin’s Lightning Network Is Getting A Marketplace For Payment Channel Liquidity
The team behind the Bitcoin Lightning Network’s leading software implementation is launching a marketplace for Lightning users to lease liquidity for payments on the second-layer network.
Today, Lightning Labs announced the release of Pool, “a non-custodial, peer-to-peer marketplace for Lightning node operators to buy and sell access to liquidity,” according to a press release.
The service will allow Lightning Network users to lend out bitcoin in payment channels in return for yield. Businesses and services providers can then draw on this liquidity when needed to manage Lightning Network payment flows.
“Efficient capital allocation is one of the most widely felt pain points when using the Lightning Network. Existing node operators do not have access to pricing signals to help determine where in the network their outbound liquidity should be allocated, and new node operators have no way to signal that they need new inbound liquidity,” the press release states.
“Lightning Pool brings these two sides together into a single market while allowing them to maintain custody of their funds.”
Pool Provides A Marketplace For Lightning Network Liquidity
Bitcoin’s Lightning Network offers cheaper, faster payments than Bitcoin’s primary network by offloading these payments onto a “second layer” (a software that is built on top of the original Bitcoin software).
Lightning manages payments through two-way payment channels, where either side holds a certain amount of the funds locked up in a channel. Sending payments outside of a channel requires a “routing” transaction. (Say Alice has a channel with Bob and Bob has a channel with Carol; if Alice wants to send a payment to Carol, she can route it through Bob.
But What Happens If Bob Doesn’t Have Enough Funds In His Channel To Complete The Payment?
This is the problem Pool wants to ameliorate. Businesses or users managing multiple channels can buy liquidity from the marketplace when they need to top off channel reserves for routing. On the other side of this transaction, Lightning Network node operators can employ their idle bitcoin by offering it up as liquidity on Pool.
“Pool adds market pricing signals to the system so that individuals know where capital is needed. Someone could go on the market and say, ‘I want 1 BTC for 1 month and I’ll pay 3%,’” Lightning Labs CTO Olaoluwa Osuntokun told CoinDesk.
Orders are matched in a “frequent batch auction.” After a window for accepting bids and asks ends, Pool’s engine matches buyers and sellers based on their rates. When the auction block clears, the payments to fund each payment channel are batched into a single transaction to save money on on-chain fees.
“Whenever you put up a bid or ask, you either get that rate or better, depending on the clearing price per batch,” Osuntokun said.
To start, payment channels will have a maximum leasing time of two weeks, or in Bitcoin time, 2016 blocks, though Osuntokun said they will diversify the leasing intervals to up to six months.
Liquidity providers will receive fees up-front on their Pool account, but Lightning Labs hopes to implement a “per block interest rate,” wherein interest is paid out instantly to a provider’s Lightning wallet roughly every ten minutes with each new Bitcoin block.
‘LiFi’: Lightning-Native Financial Services
Lightning Labs is marketing the service as a flagship for Lightning Finance or “LiFi,” a way for Bitcoiners to generate non-custodial yield on their bitcoin holdings, as opposed to lending them through a custodian like BlockFi or turning them into wrapped bitcoin for DeFi yield farming.
The service has been in a closed alpha with “many of the major exchanges, wallets, and service providers testing this in the background and to make sure it has enough liquidity on it when it launches.” The maximum order amount at launch will be 10 BTC, though Lightning Labs will raise this in the future once the platform has been sufficiently stress tested.
“In our general style of being more cautious, right now the max account size is 10 BTC. Pool is still early and this isn’t DeFi; we don’t want them depositing a million dollars from day one.”
Lightning Operators Are Bracing For A Bitcoin Bull Run
With the price of bitcoin jumping to fresh 2020 highs last month, those running the digital currency’s underlying infrastructure are pondering the consequences. Namely, the routing node operators at the heart of Bitcoin’s Lightning Network are busily bracing for the curious new users that usually come with a bull run.
Bitcoin’s Lightning Network promises faster and cheaper payments, without the occasionally crazy fees associated with the underlying Bitcoin network.
The platform is still new, in Bitcoin time, having launched for real payments in 2018. As such, it has its kinks. Developers still call using it “reckless,” because it’s new enough that it may be hiding bugs that could lead to loss of funds. Would the network be able to handle an influx of new users suddenly jumping to the Lightning Network?
Whether it can or not, those who run routing nodes are busily preparing for such a scenario.
Bitcoin Lightning “routing” nodes are the ones tasked with passing on payments through the network, until they reach their destination. Many operators of Lightning routing nodes are beefing up their nodes to make sure they can help to support a sudden increase in users.
Why Use The Lightning Network?
But first, why would Bitcoin users move to Lightning?
One word: Fees. Bitcoin fees are now higher than they’ve been in more than two years, reaching an average of $13 per transaction. With Lightning, users can avoid these fees.
“Higher bitcoin prices go hand in hand with higher transaction fees for on-chain payments,” Tudor Iova, Lightning routing node operator and founder of BTCfactura, told CoinDesk. He also noted he has seen more users tapping Lightning as fees have risen.
In contrast, Lightning payments usually cost less than a cent, making the payment method more and more attractive as fees rise.
That said, setting up a Lightning channel – a means for sending Lightning payments – requires a Bitcoin transaction. It’s kind of like a one-time setup fee for creating a Lightning account.
Say Alice puts $50 into a Lightning account and pays a $3 fee. Once that’s done, she can make as many transactions as she needs with that $50 – like 16 transactions for 16 cups of coffee.
With the Lightning Network, fees for each transaction will be negligible, averaging roughly a satoshi, worth a fraction of a cent.
Dodging Bitcoin Fees
Channels are the lifeblood of the Lightning Network. They’re also the means by which Lightning routing nodes pass along payments to others.
But, again, creating such channels requires on-chain transactions, which can be expensive when the network is congested. More transactions in the Bitcoin “mempool” – a waiting area for transactions – means higher fees.
Lightning routers are actively scouting out the best times to open channels. “We’re all watching the mempool very closely to find opportunities to open Lightning channels inexpensively as the extra space in blocks dries up completely,” said pseudonymous Lightning routing node operator Jestopher.
Jestopher expects the block space to become more scarce when (and if) a bull run commences. This happened last week, for instance, after the price shot up.
Another point routers are keeping in mind is that fees are usually lower on the weekends, when users are sending fewer transactions.
Lightning routers are busy learning and researching the best ways to tackle these issues, so that if a bunch of new users flock to the network, payments will remain smooth.
“What we are doing, and suggesting our users do, too, is to opening channels on weekends, when the fees peak off. Later, during the week, you can use Lightning payments and avoid horrendous [fees]. Else you can end up paying a fee that is higher than the price of the goods purchased,” Iova said.
Building Liquidity And Connections
Routing nodes are also open channels with a variety of peers designed to reduce failed transactions and to make the overall network more robust so payments don’t fail for users.
“We are preparing ourselves for a bull run by opening new channels and improving our Lightning node connectivity to other nodes, in order to make it possible for users to use our node Transylvania for payments and routing, when necessary,” Iova said.
The other trick is that once a Lightning channel is open, that’s not necessarily the end of the struggle. “Lightning requires lots of liquidity management, which is unfamiliar to most folks outside of Wall Street,” Jestopher said.
In short, it’s not enough to just put money into the Lightning Network; the money needs to be moved to the right spots in order for a routing node to build a path that can be used to send payments for users. Not to mention, every time a payment is made by a routing node, this liquidity is moved around. So, routing nodes need to constantly be managing where the coins are.
In fact, there’s an entire Telegram channel “LN mutual balanced channels” devoted to helping fellow Lightning users find peers and liquidity for their channels. Jestopher recently created a poll there asking fellow routing-node operators what they’re doing to prepare for a bull run.
The most votes went to “consolidating liquidity into fewer, larger channels” and “opening channels to routing peers” to build more connections with the network.
“I think the shared goal is to find out how to operate routing nodes in a sustainable way where we don’t have to clog up the mempool when it gets expensive,” Jestopher said, pointing to Lightning Loop and ThunderHub as helpful tools for boosting liquidity where needed.
Startup Lightning Labs also released a new marketplace Monday for buying and selling liquidity, an innovative way of addressing this issue.
Thousands Of New Users?
Even if many Lightning routers are preparing, some think the network is already equipped for more action.
“I think the Lightning Network is already capable enough to support thousands of new users,” Bitfinex CTO Paolo Ardoino told CoinDesk. The cryptocurrency exchange runs both the second and third largest Lightning routing nodes on the network and was one of the first exchanges to support Lightning payments.
“Spinning up new nodes and interconnecting them with others is not a very complex job, so I believe that with the growth of the user base we’ll definitely see a strengthening of the Lightning global network. I think our Lightning Network node and in general, the Lightning Network global network of routing nodes will be able to cope with an increased demand,” Ardoino added.
Iova Had A Similar View
“I think the Lightning infrastructure is a bit underestimated, and many people think it can’t cope with the traffic, [it’s] not reliable enough or it can handle only micropayments. Well, things are changing in this part of the network,” he said, pointing to public Lightning network data showing that 2020 brought in a 50% increase in the number of nodes.
Visa-backed Bitcoin Startup To Launch Lightning-Based Global Payments App
Zap is announcing Strike Global, a Bitcoin payments app for global remittances.
Zap, a Lightning Network payments startup backed by Visa through its Fintech Fast Track program, announced on Wednesday the rollout of Strike Global, a payments and remittances app using the Bitcoin layer-two technology.
An announcement by CEO Jack Mallers goes in-depth into the differences between standard fiat transfer mechanisms and the Lightning-powered mechanism in Strike Global. Mallers focused on remittances, a multibillion-dollar business that is still largely passed through expensive middlemen.
Strike Global is not too unlike traditional fintech apps, but it uses the Lightning Network for settlement. This means that payments can be essentially instantaneous and at a fraction of the cost of traditional payment rails.
Strike Global has two types of transfers, depending on the recipient’s location. For countries with a developed banking system, Strike allows users to send payments without going through Bitcoin (BTC) themselves. Strike will automatically withdraw money from the user’s bank account, exchange it into BTC, and then exchange it back into the recipient’s fiat currency and banking system.
The system largely piggybacks off the existing Bitcoin exchange infrastructure, which already allows for much cheaper, simpler remittances if users are willing to go through them manually. Since national exchanges are usually integrated with the local banking system, using Bitcoin or other cryptocurrencies allows much cheaper conversion rates compared with cross-border banking.
For countries without developed banking systems, Strike allows users to hold their money either in Bitcoin or Tether (USDT). The cryptocurrency can then be exchanged into local cash or fiat through ad-hoc solutions like Bitcoin ATMs, LocalBitcoins and others. Strike simplifies many of the exchange processes in the back end to make the experience similar to other fintech apps.
The startup partnered with Bittrex to onboard the exchange’s users on Strike and the Lightning Network. In the first quarter of 2021, it expects to complete private and public beta tests, as well as issue Strike Visa cards in the United States. In the second quarter, it expects to launch cards in the European Union and the United Kingdom.
The rollout comes as businesses begin increasing the adoption of newer Bitcoin technologies. Kraken has promised to introduce a Lightning integration in 2021, while Binance recently added SegWit address support for Bitcoin.
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