Bitcoin may be the most visible coin of the cryptocurrency revolution, but its growth and popularity has come at a cost. Its ever-growing decentralized payment network has revealed itself to be extremely unscalable. Presently, every element of its peer-to-peer network is required to receive and store a copy of each transaction that has ever taken place on that network. Blockchain, the vital foundation of the decentralized network, may be innovative, but it has made crypto transactions haltingly slow.
Three startups believe they have developed a solution – an ambitious payment network called Lightning. Lightning is designed to layer on top of bitcoin’s existing network, moving routine payments away from blockchain for a faster, scalable, and still-secure experience. If successful, Lightning payments will be quicker, cheaper, and more private than standard bitcoin transactions. Proponents believe that it could remove the biggest impediments to bitcoin’s growth, further aiding its adoption in the mainstream.
Lightning is the product of a 2015 white paper by Joseph Poon and Thaddeus Dryja, but only recently have San Francisco’s Blockstream and Lightning Labs, along with Paris’ ACINQ, translated its ideas into functional code. It works by chaining payment channels – the interactions between two parties that act as records of IOUs – together. The IOUs are called commitment transactions and don’t need to be immediately posted to the blockchain. Since payment channels are enforceable, if each party plays by the rules, they will only post to the ledger if a party decides to cash out and collect the money they are owed. In this way, the traditional bitcoin network functions more as a backup and final word than a ledger of every intrapersonal transaction as it happens.
Chaining together payment channels offers the potential to create a single payment network for all bitcoin holders. Crucially, it eliminates the need to open a new payment channel each time a new transaction between unique users takes place. Payments utilize existing channels, so a single payment channel can be used to pay multiple people, while ultimately generating fewer transactions on the blockchain.
December 2017 saw the launch of Lightning 1.0, and each company is currently working to develop a functional, public-ready version. A faster payment network with equal security benefits would be a boon for crypto’s growth, allowing it to compete with more traditional payment methods. Lightning’s early returns indicate a brighter future is within reach for bitcoin payments.