In this article, we will discuss Bitcoin Lightning Network Progress and other Scalability Solutions.
The leading hindrances to Bitcoin towards adoption as money have been it’s ability to make micro-payments, ability to accommodate large numbers of transactions, privacy and fungibility. The initial idea around Bitcoin [BTC] was to be used as a global currency which is both anonymous and decentralized.
While decentralization still holds, it’s anonymity has been compromised by KYC and AML rules. Along with that, the fungibility of Bitcoin has been lost as well, as it’s addresses can be marked which could promote capitalist controls in Bitcoin. Moreover, apart from these virtuous issues, the limitations imposed by block size and transaction fees have been specifically worrisome for the investors. With the current specifications, it is impossible to use Bitcoin to make micro-payments or even accommodate a large number of transactions.
More recently, the batching in Bitcoin transactions is seeing a growth among exchanges as it creates cheaper and lower fees for everyone on the network. It has been recently adopted by a number of exchanges which aim to reduce their cost and increase efficiency by batching the transactions. However, while batching transactions offer lower fees, it compromises on the privacy of the exchange and it’s users. Moreover, batching can be used only by exchanges and businesses which make bulk payments.
Blockstream and Lightning Labs are the two leading organizations working on the micro-payments, scalability, and privacy in Bitcoin payments.
Lightning Network (LN) was launched on 15th March 2018, months after the SegWit integration in August 2017. However, the progress in it’s adoption has been limited in the last two years.
Lightning Network Progress
Lightning Network is a peer-to-peer web of payment channels which can be used to perform process micro-payments. The transactions on Lightning are shared using union routing, which is implemented on TOR browsers. This provides privacy between the channels as these transactions are not recorded on the blockchain as well.
The value locked in Lightning Network (LN) has not seen any growth since 2019. The number of Bitcoins locked in the channels is under 1000 BTC, and has been for more than a year now. It reached a high of 1,105 BTC in May 2019, and is currently at around 950 BTC.
No. of Bitcoins Locked in the Lightning Network
Nevertheless, the number of channels in the network has seen an increase to 36,146 with around 7000 active channels.
Despite addition of support from exchanges, the adoption of Lightning Network has been fairly limited. An infamous bet between Roger Ver, leading proponent of Bcash and Charlie Lee, the creator of Litecoin on at least 1000 Lightning Network merchant adoption by the end of 2019. Reportedly, cryptocurrency wallet provider, CoinGate claims integration with more than 9000 business merchants since the inception of LN. Still, the use cases of LN adoption have been fairly limited and failed to make it to mainstream crypto.
Nevertheless, the adoption of SegWit has been on the rise since its activation in 2017. The percentage adoption of SegWit is near 50% of the Bitcoin transactions. The increased adoption of SegWit addresses opens up the opportunity for addition of Lightning Transaction (LN) channels.
Bitcoin [BTC] SegWit Adoption (Source: Woobull)[/caption]
Blockstream also offers ‘Lightning Charge’, an API which supports fast and easy integration to wallets with near-zero configuration.Samson Mow, the CSO of Blockstream claims that,
In the next five years, we will definitely see mass availability of Lightning Payments.
Bakkt, a regulated trading platform backed by NYSE owners, aims to provide Point of Sale (PoS) payments for Bitcoin transactions. While the design of the module hasn’t been released until now. There is a strong possibility of LN integration with these future PoS payments. Even Jack Dorsey backed Square Crypto Inc. also intends to add support for Lightning soon on it’s Cash App. He told the media in an interview,
“It’s not an ‘if,’ it’s more of a ‘when,’ and how do we make sure that we’re getting the speed that we need and the efficiency,”
The limitations on the use of the Lightning Network can also be due to regulatory uncertainty and the fear among people on the use of cryptocurrency as a medium for payments. The major use of a cryptocurrency is still as an investment vehicle rather than as a means of payment.
Liquid Network is a bitcoin side-chain that aims to offer fast and confidential transactions between major trading platforms. A Liquid Network full node enables you to peg-in bitcoin, issue new assets, and fully verify blocks on the side-chain.
Essentially, it is an alternate blockchain to send and receive equivalent value stored in Bitcoin. It is a Layer 2 protocol with a 1:1 digitally verifiable blockchain protocol. The most prominent feature of Liquid lies with anonymity and sending confidential payments (the amount of the transaction is hidden from the network).
Liquid Network and Lightning are two separate solutions where one favors micro-payments and retail transactions, and the other can be implemented between exchanges and traders to induce privacy in the system.
Liquid Network is an open network run by the nodes on the system. A full node enables one to peg-in bitcoin, issue new assets, and fully verifiable blocks on the side-chain. Whereas, LN is not a blockchain, but a peer-to-peer network.
Liquid Network Federation Members
It is also an STO (Security Token Offering) platform, that enables businesses and clearing houses to issue financial securities on the chain. One of the leading advantages of Liquid is the absence of a cryptocurrency. Unlike Ethereum and Tezos, this open network eliminates the greed and fear, and reduces the propensity of attacks.
The Liquid Network development and management is governed by trading platforms, clearing houses, wallets and exchanges which can make the most from the network. It offers atomic swap between the various security tokens and cryptocurrencies alike.
The number of Bitcoins [BTC] in circulation in the liquid network is twice more the number of Bitcoins in the LN at 2054 L-BTC.
Liquid Network Number of Bitcoins (Source) [/caption]
Bitcoin Mixing using CoinJoin
Apart from Lightning and Liquid, other methods to induce privacy into Bitcoin transactions include the use of mixers. CoinJoin is a leading method implemented by these services which combine payments from multiple users into a single transaction. Hence, masking the original source for the transaction. Leading open-source wallets, Wasabi and Samourai provide CoinJoin mixing.
More recently, Blockstream launched PayJoin (or pay-to-end-point or P2EP) which could offer better performance that CoinJoin. When BTCPay, an open source Bitcoin payment tool added support for PayJoin, its’ lead developer Andrew Camilleri told Coindesk,
PayJoin is a great tool to help break blockchain analysis heuristics and achieve that.
The existing mixing protocols can still be tracked by analytics algorithms as CoinJoin leaves distinct anomalies on the blockchain.
One other popular privacy and fungible solution which is being implemented on existing public Blockchains is MimbleWimble. Litecoin [LTC] is the leading cryptocurrency which is working on this sidechain integration along Grin developer, David Burkett.
The above solutions are essential for one’s security, as the transparency of public blockchains is an advantage. However, it also exposes an individual’s wealth making the person susceptible to thefts and attacks. The end purpose of these solutions is to provide speed and only disclose information to the participants of the transaction than the entire network.
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