A Look at Ark, a New Scalability Protocol for Bitcoin - Bitfinex blog
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A Look at Ark, a New Scalability Protocol for Bitcoin

Ark made waves this year at the annual Bitcoin conference in Miami, which was organised by Bitcoin Magazine. Ark was one of the many announcements at the conference, and is a new layer two protocol for Bitcoin which addresses some of the UI issues with Lightning Network while improving privacy and scalability.

What is Ark? Bitcoin’s Newest Layer Two Protocol 

Ark is a unique new Bitcoin layer two scaling protocol, which shares many similarities with the more well-known Lightning Network layer two scaling protocol. Ark, while similar to Lightning, is its own unique protocol.

Ark was created by Burak, a Bitcoin developer who conceived Ark while trying to work on solutions to make the Lightning network even more accessible.

Ark’s distinct design allows for Lightning-like speed of payments and scalability improvements, and improves user privacy. Ark consumes less blockspace than Lightning and is unaffected by on-chain fees.

It also does not require the opening, closing, funding or liquidity management of payment channels like Lightning Network, so users do not have to overcome the challenge of funding their channel with inbound liquidity before receiving a payment.

Ark accomplishes this feat, by leveraging Ark Service Providers (ASPs), which are untrusted intermediaries which, like Lightning Network nodes, are always connected to the network and provide liquidity and facilitate pegging in & out of the Ark payments layer with on-chain Unspent Transaction Outputs (UTXOs). 

When a user deposits on-chain Bitcoin to an ASP, the funds go to a special 2 of 2 multisignature Bitcoin address on-chain, and then Virtual Transaction Outputs (vTXOs) are created. These vTXOs are “lifted” off-chain and exist solely in Ark’s layer two. vTXOs can be redeemed for on-chain BTC when a user decides to withdraw their funds from Ark.

High Speed Coinjoins & Private Unlinkable P2P Payments

Another interesting quality of Ark is its remarkable privacy improvements. While Lightning Network is more private than on-chain Bitcoin, Lightning itself still hasn’t been optimised for privacy, although some Lightning developers are working to create a privacy-focused Lightning Network implementation. 

With Ark, when users send or receive funds, every transaction goes into Ark’s high speed Coinjoins where an ASP acts as a coordinator similar to how Coinjoins work in Samourai’s whirlpool, or Wasabi wallet’s WabiSabi Coinjoins. Users can elect which vTXO they wish to spend, leveraging “coin control”, before it gets Coinjoined.

Ark offers a more private instant payments experience, without the liquidity constraints of Lightning Network, or a direct link between the sender and receiver. Its privacy and scalability improvements are much more approachable for non-technical users, as the technical aspects are offloaded onto ASPs.

The benefits of vTXOs are similar to the advantages provided by the ecash in Chaumian ecash implementations currently being built on Bitcoin, like Cashu and Fedi. Ark’s Lightning integration through ASPs, could make vTXOs compatible with ecash, using Lightning Network as a connecting payment rail between the protocols.

Ark Sounds Too Good to Be True, What’s the Catch?

ARK improves on privacy while offering similarly cheap, instant, scalable, and trust-minimised P2P Bitcoin payments. 

There’s only two small problems.

The first problem is that as of now, it’s just an idea. Burak has come up with the design, but there is no proof of concept or working implementation of Ark. Burak is working hard on shipping the first version, and there will be some help from the community after announcing the project at Bitcoin Miami, but these things take time.

Lightning has been an idea since 2015 or so, with the first alpha implementations appearing around 2018. Since then, Lightning adoption and usage has been growing, and development has been taking place at a rapid pace, yet the Bitcoin-focused retailer Bitrefill reported at the start of last year that only 4.4 percent of payments were made with the Lightning Network. 

The second problem for Ark, is that Burak’s design requires BIP 119’s support for CTV or Covenants. Covenants in Bitcoin would allow a transaction to leverage Bitcoin scripting to add scripting logic to transactions, which would allow users to apply spending conditions to UTXOs.

Covenants can add a whole range of advanced features to Bitcoin like new smart contracts, payment pools, and channel factories. The only problem is they require a soft fork to add them to Bitcoin. As we all know, changing Bitcoin’s protocol can be quite the undertaking, as it relies on convincing the community of node operators and miners to accept the consensus changes. History has shown us this is no easy task. 

All in all, Ark sounds like a very cool and very practical way to overcome some issues present in Lightning, giving users another option with a differing set of trade offs. Competition and options are a win for users, as different alternatives provide more freedom overall. We are excited to see where Ark development ends up, and we are watching the project with great interest.