The Lightning Network Journey: an overview - Bitfinex blog
post-template-default,single,single-post,postid-18064,single-format-standard,bridge-core-3.0.6,et_bloom,qode-page-transition-enabled,ajax_fade,page_not_loaded,,qode-title-hidden,qode_grid_1300,footer_responsive_adv,qode-content-sidebar-responsive,qode-child-theme-ver-1.0.0,qode-theme-ver-29.3,qode-theme-bridge,qode_header_in_grid,wpb-js-composer js-comp-ver-6.10.0,vc_responsive

The Lightning Network Journey: an overview

2019 was a great year for the Lightning Network (LN). It managed to grab the attention, not only from its proponents but notably from the wider crypto community.

The new development became the subject of various publications as well as online conversations. Some highlighted its capabilities and huge potential, while others expressed their incertitude or disagreement.

Regardless, the Lightning Network is still one of the most interesting subjects to talk about in the crypto space as it’s also probably one of the most exciting crypto projects so far. 

Here’s an overview of the Lightning Network journey to get a better idea.

What is the Lightning Network? 

According to the Lightning’s website, the Lightning Network is a decentralized system for instant, high-volume micropayments that removes the risk of delegating custody of funds to trusted third parties.

Although it is believed that LN can be implemented on top of any blockchains, the capabilities mentioned in the definition actually are meant to address the technical limitations of the Bitcoin blockchain.

These limitations are said to have stifled Bitcoin’s adoption as a peer-to-peer payment system as its creator originally intended. On the bright side, they have encouraged many Bitcoin proponents to develop solutions to get Bitcoin back on track for the fulfilment of its revolutionary vision to be the ultimate P2P electronic payment system. 

Back in 2016, two blockchain developers, Joseph Poon and Thaddeus Dryja introduced the Lightning Network, which they claimed to be the answer to Bitcoin’s technical limitations. 

Its technology has the capabilities to boost the number of transactions per second to almost unlimited at minuscule fees, at the same time, allows instant transactions, making Bitcoin a viable option for means of payment.  

The Lightning Network Challenges and Ongoing Development 

Just like any other new technologies, the Lightning Network also faces challenges, such as negative feedback from those who are sceptical about it. 

The network itself has seen continuous upgrade and development ever since its public introduction. There are at least four blockchain companies – Blockstream, Lightning, Lightning Labs, and ACINQ – that are actively working on the developments and implementations of the technology at the moment.

Here are some highlights of the developments that have been made or proposed so far to improve the network: 

1. Interoperability

  • Submarine Swaps 

Adding funds to LN channels directly from Bitcoin blockchain through on-chain transfers are made possible and more accessible by Submarine Swaps. Further development is still ongoing to allow inverse transaction from off-chain LN channels to on-chain BTC address.

  • Atomic Swaps

This feature boosts LN’s interoperability across blockchains by allowing cross-blockchain transactions.

  • Splicing

Splicing is looking to improve, even completely remove LN’s inefficiency that forbids users from adding or taking the Bitcoin they have allocated to the channels and the need to close the channels first to be able to use the funds. It works by allowing involved parties to top up or take the funds from the channel directly without undergoing the regular procedures.

2. Security & Privacy

  • Watchtowers

The new functionality was added to help monitor transaction channels, thus reducing the risks of fund losses from stealing attempts by dishonest parties.

  • Eltoo

Eltoo is another proposed solution to improve LN’s security that works by preventing false alarms caused by software issues, which otherwise results in losses of funds.

  • Neutrino

Neutrino is a payment verifying protocol which enables the process to be conducted on the client-side. 

3. Efficiency 

  • Autopilot

The Autopilot feature helps users by recommending the “best channels” to send their payments. It scans the entire LN looking for routing nodes that are the most active in managing the liquidity of their channels, assuming they’re the ones capable of providing the “best service”. 

  • Trampoline Payments

Trampoline is the proposed new routing method for LN, which would significantly reduce the amount of computation and data the current process requires to route payment across the network.  

  • Dual-funded channels

The dual-funded channels capability allows a user to send payment directly after a channel is opened, without having to wait for the other party to send a payment back.

  • Atomic Multipath Payments (AMP)

AMP would enable large transactions on LN to be divided into smaller ones, thus making LN more feasible as a payment processor. 

The Lightning Network Adoption

With lots of things going on, it was just a matter of time for the Lightning Network to grab the attention of crypto enthusiasts, particularly Bitcoin believers. 

However, it wasn’t until last year when the Lightning Torch initiative started by Hodlonaut and involved many renowned crypto personas that LN eventually managed to get into the spotlight. Various crypto-focused media reported the torch movement and made the Lightning Network news headline.

Figure-wise, the Lightning Network statistics for the year 2019 shows an impressive growth. According to the data compiled by CoinGecko, Bitcoin Lightning Network capacity showed a 62% increase from the previous year, from ₿526 by January 1st, 2019 to ₿854 by January 1st, 2020. 

The figure is even more exciting for the number of nodes with a 114% increase in node count, from 2,298 nodes by January 1st, 2019 to 4,923 nodes by January 1st, 2020. And in only less than a month, the number of nodes has reached 11,141 nodes by January 23rd, 2020.  

The Lightning Network stats

When it comes to adoption, many businesses have been reported to have started adopting LN these days. In the exchange business, Bitfinex is the first major crypto exchange to integrate the Lightning Network on its platform. It wasn’t without challenge, however, there were also high-level learning experiences during the development process of the Lightning Network integration on Bitfinex. Users can now deposit to and withdraw Bitcoin from their accounts simply by connecting to Bitfinex’s Lightning Node

Bitfinex's Lightning Node

Bitfinex also collaborates with Bitrefill, a platform that allows people to buy gift cards and pay the bills using crypto, which also supports the Lightning Network payment. 

There may still be a long way to go for LN to achieve its full potential. However, with such a passionate community and aggressive development, the future looks promising for the Lightning Network. And it may not be too long for the Lightning Network to become critical leverage for Bitcoin’s value and mass adoption.