It’s fair to say that Lightning Network adoption has been slow, but why is that? And what will it take to ensure it fulfills its promise?
Ever since it was first proposed, the Lightning Network has divided opinion. Bitcoin detractors claim a layer two protocol shouldn’t be Bitcoin’s scaling solution. Whereas, those in favour of the Lightning Network point to its exponential growth and its future capabilities.
The layer two technology isn’t fully ready yet, but with teams like Blockstream, Lightning Labs and Square Crypto continually upgrading the nascent technology, Lightning Network adoption is now not a matter of if, but when…
What is The Lightning Network?
Bitcoin was launched as a peer-to-peer (p2p) digital cash by Satoshi Nakamoto back in January 2009. However, with the cost of transactions and length of time Bitcoin transactions can take, p2p digital cash isn’t a reality yet.
This is where layer two solutions like the Lightning Network come in.
The Lightning Network s a decentralized system for instant, high-volume micropayments that eradicates the risk of handing over custody of funds to trusted third parties.
It’s a protocol that can be integrated on top of Bitcoin, and eases up transactions on the Bitcoin blockchain.
A good analogy is to think of the Bitcoin blockchain transactions as being those of the central bank, whereas Lightning Network transactions for everyday things like buying a coffee or going to the supermarket.
BTC payments on the Lightning Network are taken off the main chain, and to do so two parties set up a payment channel where they can send BTC back and forth, as many times as they like. The transactions are then done on the Lightning Network, at a fraction of the time and cost of a Bitcoin main chain transaction.
Lightning Network Upgrades
As with all new technologies, the Lightning Network has its challenges, and this feeds the skeptics who are always quick to dismiss it as a finished project. But the fact is it’s growing as a technology and network, and we have every reason to be optimistic.
The network itself isn’t fully ready yet, but it’s going through continuous upgrades, which are opening more options and making Lightning Network adoption a certainty.
3 Upgrades That Will Ensure Lightning Network Adoption
Bitcoin OG Andreas Antonopoulos once said splicing was Lightning’s most powerful and underappreciated feature.
Splicing eradicates the need to close channels when someone wants to take BTC out ‘splice out’ of a channel. As well as taking funds out, splicing will also let a user top up funds, known as ‘splice in’ into an existing Lightning channel.
Without splicing anyone using the Lightning Network would need to close a payment channel when wanting to take out some BTC. However, splicing allows users to make more transactions, including topping up and withdrawing without the need to close the channel.
This would be useful for anyone not wanting to close down a payment channel, but has to take some BTC out to pay someone outside of the Lightning Network.
For example, if Bob has all his BTC in a payment channel, but a merchant doesn’t accept Lightning payments as yet. Bob would be allowed to ‘splice-out’ and send his payment to the merchant on the main Bitcoin blockchain without closing the channel that holds his BTC.
The merchant would receive his BTC, and Bob’s channel with whomever he took out would basically reset with the new value on either side.
Atomic Swaps aren’t new to Bitcoin or other blockchains, and the technology has been used in the Lightning Network for a couple of years now, but what are atomic swaps?
Atomic Swaps are basically swapping one cryptocurrency for another different crypto without the need of an exchange. By using a function known as a ‘hash time-locked contract’, atomic swaps leverages mutisignature addresses and time-locks, thus enabling trustless swapping of different cryptocurrencies.
Let’s use Alice, Bob and Carol in an our example: Bob has done some work for Alice’s friend Carol. Bob and Alice have a BTC payment channel and Bob has invoiced Carol for 1 BTC, but Carol doesn’t use BTC. She does, however, have a LTC payment channel with Alice.
Instead of having to exchange her LTC to pay her BTC to Bob, Carol can send LTC to Alice through their LTC channel. The atomic swap function on the Lightning Network will then exchange the LTC to BTC and Bob will automatically have his payment in BTC.
And because it is all done within the Lightning Network, it eases up congestion on either blockchain, and makes it cheaper and faster for both parties. The only problem with this is that because Alice is acting like a guarantor, she must have the equivalent value
Atomic Multipath Payments (AMP)
Many people think of Lightning Network as a micro payments processor. And while this is true, it can also act as a large payment validator, and with AMP being proposed it can also tighten Bitcoin privacy.
As stated above, that for any three way atomic swaps to take place, the third party would have to back the value up. That problem would be emphasized when Carol wants to send Bob 10 BTC as payment for his car. Remember Bob and Carol don’t have a direct channel, but now their mutual friend Alice doesn’t have 10 BTC to cover the transaction.
This is the problem Atomic Multipath Payments (AMP) are proposing to sort out. Basically AMPs can split payment over multiple channels, using nodes that can handle the payment, and even separate the payment if necessary, sending it in bits to the receiver.
So in Carol and Bob’s case, Carol can send the 10 BTC, which could be split into multiple smaller amounts if needed. It would then be forwarded onto Bob via multiple payment paths or routes through different intermediaries.
The transaction is only completed if and when all 10 BTC reach Bob. If for whatever reason one of the transactions doesn’t reach Bob, the whole payment will be sent back to Alice, and they would have to try again.
As well as this type of scenario, AMPs will help with privacy as it breaks down large payments into several transactions, because only the sender and receiver know exactly how the BTC was sent.
Lightning Network Adoption Might Be Slow But It’s Happening
The Lightning Network is in its infancy, and the Lightning Network whitepaper is just its proposal. As time goes by and more innovation is integrated, Lightning Network adoption will gain pace.
Lightning Network is clunky and awkward at the moment, but with updates such as Splicing, Atomic Swaps and Atomic Multipath Payments, the future of Bitcoin as a peer-to-peer currency is more likely.
These are just three drivers that will ensure Lightning Network adoption, and no doubt more will be released as time goes by.