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Fees Spike as Market Dips, Prompting Rapid Growth of Bitcoin Lightning Network

Fees Spike as Market Crashes, Prompting Rapid Growth of Bitcoin Lightning Network

The Bitcoin Lightning Network saw an unprecedented increase in capacity in terms of Bitcoin and the number of open channels in the two weeks from 12 November to 26 November 2018. The capacity of the Lighting Network rallied from around 110 Bitcoins to 460 Bitcoins, while the number of channels spiked from 13,000 to 16,500.

The cause of this increase in adoption becomes clear when looking at the market behavior during the same time. Bitcoin crashed from USD 6,500 to USD 3,500, and the increased volume during this crash caused Bitcoin transaction fees to exceed USD 1 on 20 November. The purpose of the Lightning Network is to be a scalability solution so that Bitcoin can handle an increased amount of transactions while keeping on-chain transaction fees low. It appears the Lightning Network has fulfilled this objective mission during the crash of November 2018.

The Bitcoin Lightning Network functions via a smart contract that creates a lightning channel, where a user deposits Bitcoins into the smart contract, making them become usable on the Lightning Network. A smart contract also closes the channel and the Bitcoins are disbursed to their rightful owners. This directly ties lightning channels to the Bitcoin blockchain, but only two transactions are needed on-chain per channel for the Lightning Network to operate. In between the opening and closing of a channel, there can be infinite transactions within the channel, and these are all off-chain with practically zero transaction fees.

This makes the Lightning Network an attractive scalability solution for Bitcoin, since if blocks ever reach capacity consistently and transaction fees begin to rise, like what happened during the crash of November 2018, then Bitcoin users can choose to start using Lightning to avoid fees and waits.

It is unknown just how high transaction fees would have gotten in November 2018 if the Lightning Network did not exist. It is becoming clear that the rapid increase in capacity helped alleviate the higher than normal transaction fees, and as of early December, transaction fees are declining towards baseline. During the big rally of December 2017, transaction fees exceeded USD 50 for several days, demonstrating the sort of crisis that could happen in the absence of the Lightning Network.

The alleviation of Bitcoin’s transaction fees and simultaneous rise of Lightning Network capacity may be a sign that it has approached maturity and can handle any sort of transaction fee crisis in the future. This will ensure for the long term that Bitcoin does not become unusable due to rising transaction fees.


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Lightning Network Sees Massive Increase to $2 Million Capacity

Despite the slump in the Bitcoin market this week, the Lightning Network (LN) has hit an all-time high network capacity, currently handling USD 2 million in Bitcoin.

The LN is a payment protocol that operates as a second layer over the Bitcoin blockchain to facilitate faster transactions between nodes. Users argue that it could be the solution for Bitcoin’s scalability issues.

While Bitcoin’s value may have depleted over USD 1,000 this week currently standing at just over USD 4,400, the LN has hit an all-time high operating capacity of USD 2 million, nearly a 300% increase. The number of nodes has risen to 4,136 at time of press, adding over 8%, while the number of channels has reached 12,224.

A Reddit post also indicates the growing scale of the LN on an anecdotal level. Reddit user u/DistributedFutures shared a photo of a shop in Melbourne displaying a rare Bitcoin LN acceptance banner, with commentators comparing the network to Bitcoin’s rise in 2012.

The original poster noted it as an indicator the LN ”isn’t vaporware, it’s real and available at retail”. It was also written that Mind Games where the sign was displayed is on one of the busiest streets in the Australian city of 5 million people.

The network has faced criticism, however, over the speed of its growth in relation to its technical abilities. In July this year Andreas Brekken, an associate and supporter of Roger Ver and his Bitcoin hard fork Bitcoin Cash (BCH),  began operating a powerful LN node that took control of 49% of the total network capacity which then stood at USD 427,000.

Controlling such a large portion of the network capacity does not necessarily present a high-risk to the network, although many interpreted the move as an attempt by Brekken to undermine the network.

Bitcoin Cash is highly critical of the LN as it is a key competitor to BCH’s success should it find wide-scale success.


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Electric Bike Integrates Bitcoin Lightning Network

Matthias Steinig, a programmer who focuses on Bitcoin Lightning Network technology, has developed the Lightning Payable e-bike, which can perhaps be called the Lightning Bike. Users send micropayments via the Bitcoin Lightning Network to turn on the bike’s electric motor, with 1 minute costing 250 satoshis, which is USD 0.01-0.02 depending on market fluctuations.

This is made possible with a Raspberry Pi, a network card which provides an internet connection, and an e-paper display. Users select how many minutes they want the electric bike to drive for, and are presented with a QR code on the e-paper display. The e-paper display uses very little energy, which is important since any energy used is drained from the electric bike’s battery.

The user scans the QR code with the Lightning Mobile App, a Bitcoin wallet that is Lightning Network enabled, and sends the payment. The electric bike then starts driving and shuts off once the period of time that was paid for has expired. The user of the bike can keep peddling under their own power, which makes this bike a good option for someone who wants to work out, but then gets tired and can have the electric motor drive them home.

Micropayments for the Lightning Bike could be done with normal Bitcoin payments, but since Bitcoin transaction fees are around USD 0.10 on good days, and can sometimes approach USD 1, it would be nonsensical. Users can send micropayments via the Lightning Network with transaction fees of practically zero, so users can buy a minute of riding time on the Lightning Bike without burning up far more Bitcoin in transaction fees.

Steinig has made the code for this project open source on GitHub, allowing anyone in the world to use this technology. Perhaps, bike rental companies will start using Lightning Bikes. Beyond that, with simple modifications, this code can be used to sell any goods or service with the Bitcoin Lightning Network. Vending machines and laundromats could perhaps use this technology in the future to facilitate instant and secure micropayments, ending the problem of needing to find quarters to do laundry.

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Lightning Network-Powered Bitcoin Soda Machine

A crypto and hardware expert in Brazil has created a Bitcoin-powered soda machine. In the below video, you can see the inventor scanning a QR code on the soda machine with his phone. Without waiting for any confirmations, the soda machine begins to dispense Coca-Cola into a cup with ice, showing how Bitcoin can be used in the future for micropayments to obtain products from all sorts of vending machines.

Usually, people who buy products with Bitcoin have to wait for a confirmation, which takes on average 10 minutes, before receiving what they purchased. This Brazilian developer circumvents this by using the Lightning Network, which allows for instantly confirmed transactions. Perhaps more importantly, the Lightning Network has almost zero fees, making micropayments for things like a cup of soda possible. When using the normal Bitcoin blockchain, transaction fees can sometimes be as high as USD 1, making Bitcoin a highly expensive payment method relative to the cost of the item for most products that come out of vending machines.

This Bitcoin-powered soda machine is one of several similar inventions created during 2018. In June 2018, David Knezic created the Sweetbit candy dispenser, which instantly dispenses candy for Bitcoin.

Just finished my Bitcoin-enabled candy dispenser 🍬

— David Knezić (@davidknezic) May 27, 2018

Also in June 2018, Ricardo Reis from Brazil created a machine which dispenses coffee instantly for Bitcoin.

The soda machine, candy dispenser, and coffee machine all work very similarly, with a user opening their Bitcoin wallet on their phone, scanning a QR code on the machine, sending Bitcoin, then instantly receiving the goods they purchased. Perhaps in the future, Bitcoin-powered vending machines will proliferate across the world, because Bitcoin is much more convenient than using change or cash, and is far more secure.


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Submarine Swaps Make It Possible for All Cryptocurrencies to Use Lightning Network

Lightning Labs developer Alex Bosworth was investigating atomic swaps, a way to transfer cryptocurrencies between different blockchains without middlemen, and then came up with the groundbreaking idea of submarine swaps.

The Lightning Network was originally developed to be a scalability solution for Bitcoin. This would require an on-chain Bitcoin transaction to lock up coins in a lightning channel, and then another transaction to close the channel and disburse the Bitcoin to its proper owners. In-between the opening and closing transactions there can be thousands or millions of transactions on the Lightning Network. Lightning Network is still a work in progress but definitely has the potential to allow Bitcoin to scale to the size of financial networks like Visa.

Submarine swaps, on the other hand, have the ability to allow any cryptocurrency to be used on the Lightning Network, which could lead to the formation of the ultimate decentralized exchange. This could, in turn, lead to the Lightning Network becoming a scalability solution for all cryptocurrencies, and not just Bitcoin alone.

What Alex Bosworth figured out is that with Submarine Swaps a user can send Bitcoin from the Bitcoin blockchain into an already active Lightning Network channel. One major advantage of this right off the bat is that it allows Lightning channels to be refilled, instead of going through the tedious procedure of opening a new channel when bitcoins in a channel run out, saving on transaction fees.

Even more importantly, any cryptocurrency can be sent as a payment into the Lightning Network by using Submarine Swaps. Jason Wong has already created the software to send Litecoin and Ethereum into the Lightning Network and has successfully tested it.

It is clear that any cryptocurrency can be used on the Lightning Network if the proper software is developed for each crypto. This means that instead of a Lightning Network for each type of crypto, there can just be one Lightning Network with all the cryptos.

Simultaneously, this can easily be developed into an ultimate decentralized exchange where every cryptocurrency can be traded with one another, without regulations or middlemen. It changes the entire paradigm of crypto exchanging, which is an aspect of the industry that is currently being suffocated by government regulations. A decentralized exchange built with submarine swaps would make government regulations obsolete and ineffective, freeing the entire crypto world from centralized tyranny. Long term, this would increase the proliferation and profitability of crypto.

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Lightning Network Capacity Exceeds 100 Bitcoins

The capacity of the Bitcoin Lightning Network has grown to more than BTC 100 for the first time, with more than 12,000 active channels and 3,300 nodes.

To put this in perspective, in January 2018, there were fewer than 100 Lightning Network channels, and in May there were over 6,600. Clearly, the network is rapidly growing, a positive sign that it will eventually fulfill its goal of being a scalability solution for Bitcoin.

The Lightning Network is a layer 2 scalability solution for Bitcoin. It process Bitcoin transactions off chain, allowing for infinite transactions, versus the only 5-10 transactions per second possible on the Bitcoin blockchain. The Lightning Network achieves this by locking up Bitcoins in a smart contract when the channel is first opened, and then the Bitcoins locked up in the contract are disbursed when the channel is closed. This means each channel produces two on chain transactions, while there may be thousands or millions of transactions off-chain that occur in between.

Transactions sent with the Lightning Network have drastically reduced fees versus on chain transactions, since no mining resources are needed to send transactions on it. In general, all Lightning Network transactions cost far less than USD 0.01 in fees, and this is very important for scalability. For example, when more than 5-10 transactions per second are being submitted to the Bitcoin network on chain, it causes transaction fees to rapidly rise. This was seen at one point during 2018 when the fee for each Bitcoin transaction exceeded USD 50. Once Lightning Network is functioning properly this sort of problem will be a thing of the past, and Bitcoin will be able to scale to the size of Visa (thousands of transactions per second) and beyond.

It will take some time for all the bugs to be worked out of Lightning Network but eventually, it seems that it will offer the scalability that Bitcoin needs. It will be very important to track the evolution of Lightning Network’s capacity and channel numbers over time. These stats have to increase by several orders of magnitude for Lightning Network to become a true Bitcoin scalability solution.


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Andreas Brekken’s Experience Running the Biggest Lightning Node

Andreas Brekken, the operator of, decided to review the Bitcoin Lightning Network by creating the largest node on the network. The Bitcoin Lightning Network is supposed to be a scaling solution for Bitcoin since it facilitates instant payments with very low fees. Andreas Brekken wanted to find out first hand how practical it is to use the Lightning Network instead of using the Bitcoin blockchain.

First Andreas Brekken, set up a Lightning Network node, which required setting up a full Bitcoin Core node. This process is very complex and quite difficult for inexperienced users. There is software available to make it easier to use the  Lightning Network, but since the Lightning Network is still somewhat in a beta even relatively easier software requires technical knowledge. Setting up the Lightning Network node required further effort that was just as complex.

The Lightning Network had a capacity of 20 Bitcoins (USD 130,000), when Andreas Brekken started his experiment. He then deposited a large amount of Bitcoin and became the largest Lightning Network node. Soon his node exceeded 40 Bitcoin capacity with 250 active channels. There were some centralization fears from his experiment, but he ran the node responsibly and there were no problems. Running the node required lots of work and constant checking, and there were some errors which took him many hours to figure out.

Lightning Network nodes get paid for their services; Andreas Brekken did the math and found he got USD 0.001 for each transaction. This illustrates how Lightning Network has very low fees compared to Bitcoin, which often has fees of USD 1 or more during high traffic times. However, it also illustrates how there is little incentive to run a Lightning Network node. During his entire experiment, Andreas Brekken profited less than 1 USD from transaction fees despite being the biggest node and having over USD 100,000 locked up in his Lightning Network node.

While Andreas Brekken was running his node he experimented with buying things using the Lightning Network. Practically everything he tried to buy resulted in errors along the way. He tried to buy a hoodie with the Lightning Network, and despite having the biggest node there was apparently no way to route to the store selling the hoodie. He tried a different Lightning Network wallet and that didn’t work, and he gave up. Bitcoin works 100% of the time when connected to the internet and paying a proper transaction fee, while Lightning Network seems to fail most of the time even for someone with good technical knowledge.

Andreas Brekken had enough of the experiment since there were more costs to run the node then profits from maintaining the network, and he shut his node down. This indicates that the Lightning Network could have a hard time gaining widespread adoption since there’s no incentive for big players to run a node. Shutting down the node was somewhat difficult, since there were hundreds of channels connected to his node which he had to individually shut down. Some of these channels had people who were offline, so he couldn’t shut them down quickly. If one side of a channel is offline and the node closes down, then the node has to wait a period of time before they get their Bitcoins back as a safety measure. This waiting time can be up to 2 weeks, meaning the node operator won’t get their money back for 2 weeks. For someone like Andreas Brekken who has a large sum of money this might not be a big deal, but for a normal person, it could really cause them trouble.

Overall, Andreas Brekken’s experiment seems to have illustrated how Bitcoin’s Lightning Network is in beta and needs plenty of improvement before it can be implemented as a scalability solution. There is a team of developers working with the Lightning Network though, and eventually, it should be a real scalability solution. Things are not that urgent now anyways regarding Bitcoin scalability since SegWit has increased block size and is acting as a temporary Bitcoin scalability solution. Hopefully, by the time Bitcoin scalability becomes a serious problem again the Lightning Network will be ready.

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100 Merchants Able to Trial Lightning Network Thanks to CoinGate

CoinGate has announced a new pilot program, allowing 100 merchants to test a Lightning Network-enabled version of their service, making Bitcoin transactions faster and cheaper.

Since the Lightning Network is only now becoming a reality and is still very untested, CoinGate will cover any funds that are lost due to glitches or bugs in the software that may occur.

Other caveats apply too, such as the BTC 0.042 per transaction limit (around USD 270 at time of writing). Transactions larger than this limit will have to be made on the original layer, but USD 270 still covers the majority of everyday transactions.

Coffee, groceries, gas, and even small electronic purchases could all be done on the blockchain. With transaction fees becoming more expensive than a Western Union transfer during times of traffic congestion, the Lightning Network will greatly alleviate the number of transactions the blockchain has to handle.

Despite the unfinished nature of the network, CoinGate still believes there is much benefit in testing out its capabilities anyways, as it will provide valuable feedback for not only CoinGate but those working on the Lightning Network.

CoinGate’s CTO, Rytis Bielauskas, told CoinDesk:

“It’s a very new technology. Inevitably there will be some bugs, either in our implementation or in the Lightning Network. It will help, not just us, but the whole community because the bugs we find might help the whole protocol.”

Coingate is a payment processor that already accepts over 50 different cryptocurrencies and is partnered with companies like ShapeShift, Simplex, and PrestaShop.

With more purchases being made online, and a growing percentage of those online transactions being made with cryptocurrency, long-term scaling solutions like the Lightning Network are a necessary step in order to remain a viable payment method against credit and debit cards.

Lightning also opens up a new set of possibilities, such as micropayments or in situations where transactions are made repeatedly to the same recipient.


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eltoo to Improve Lightning Network

Several Lightning Network developers have released a paper titled ‘eltoo: A Simple Layer 2 Protocol For Bitcoin’ that outlines improvements to Bitcoin’s latest scalability upgrade, Lightning Network. Christian Decker and Rusty Russel from Blockstream as well as Olaoluwa Osuntokun from Lightning Labs co-authored the paper.

eltoo is derived from the pronunciation of L2, an acronym for layer 2, which stands for layer 2 Bitcoin protocols like the Lightning Network. The Lightning Network allows for Bitcoin transactions in fractions of a second, possibly facilitating millions or billions of transactions per second in the future, far more than Visa.

It does this by conducting almost all of its transactions off chain. Only the transaction opening a lightning payment channel and the transaction closing a payment channel are stored on the Bitcoin blockchain. This massively reduces blockchain data bloat, and is necessary technology to keep Bitcoin transaction fees low in the future, and therefore essential for Bitcoin being useful as an everyday currency in the long term.

The operational Lightning Network was released in December 2017 and there are already thousands of lightning payment channels open, and that number is growing quickly, indicating it is on track for global adoption.

The Lightning Network isn’t perfect, however, and eltoo has been developed to improve some of its problems. eltoo condenses the amount of data users need to store by saving only the most recent off-chain transaction data. This reduces the storage space required by users versus the Lightning Network, which requires so much data it is difficult to download and run.

More importantly, getting rid of older off-chain transactions deletes toxic information. If a user loses their device that is running the Lightning Network and they restore an older state of their Lightning Network transactions they could lose their money as a penalty. With eltoo, only the freshest state is stored which fixes this problem and keeps user Bitcoins safe.

Also, eltoo will allow transaction fees to be added at the time a payment channel is closed and settled, unlike the current Lightning Network which requires fees to be decided on when a payment channel is opened, possibly months or years before the settlement transaction. This could lead to drastic overpayment or underpayment of fees, leading to spending too much money on the fee or a transaction that gets stuck in the mempool for a long period of time.

Before eltoo can be implemented, Bitcoin must be forked to include SIGHASH_NOINPUT in its protocol, which allows any transaction input to be bound to a transaction output with the same script. This connects the final settlement transaction to the transaction that creates the payment channel without saving any of the intermediate states, a key aspect of eltoo. Of course, forking Bitcoin is extremely controversial, and it remains to be seen whether the SIGHASH_NOINPUT fork that eltoo requires will ever occur.

Eltoo is not meant to replace the Lightning Network, rather it can be added to the stack of protocols that comprise the Lightning Network and has backwards compatibility.


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Thousands of Payment Channels Now Open as Bitcoin Lightning Network Grows Rapidly

The Bitcoin lightning network has seen rapid growth since its first transaction in December 2017. There were just 89 lightning payment channels on 19 January 2018, but now there are over 6,600.

The lightning network is a scalability solution for Bitcoin that can massively reduce transaction fees while drastically increasing transactions per second. The lightning network was developed and launched during a time when Bitcoin transaction fees hit all-time highs of nearly 60 USD, making it practically unusable as a currency. The high fees were the result of people sending more transactions than the network could handle, over a quarter million transactions were unconfirmed and sitting in the mempool on 22 December 2017.

A payment channel on the lightning network is created when two users send Bitcoins into a multi-signature wallet, and the transaction opening the channel is stored on the blockchain. The users can then send bitcoins back and forth to each other completely off-chain, using smart contract technology. A ledger is kept by both parties, and after each lightning network transaction between the parties, they sign an updated ledger with their private keys.

Users can send an infinite amount of transactions through a lightning network channel without paying any transaction fees, and all the payments occur within a fraction of a second rather than the average of 10 minutes that it takes for transactions on the Bitcoin blockchain to confirm.

Either party involved with a lightning network channel can broadcast the last valid ledger which was signed by both parties to the blockchain, at which point the bitcoins locked up in the multi-signature address will be disbursed to both parties according to the final ledger entry. This is designed so that neither party in a channel can back out of a payment that has already been agreed upon and mutually signed.

Essentially, when using the lightning network there are only two transactions ever recorded on the Bitcoin blockchain for each payment channel; the transaction which creates the channel and the transaction which ends the channel, and all transactions in-between are off-chain.

This has the potential to allow for many orders of magnitude more Bitcoin transactions per second than the blockchain can handle by itself. Right now there are less than 10 Bitcoin transactions per second, but the lightning network could handle millions or billions of transactions per second, blowing Visa out of the water.

The lightning network still has some development to undergo before it is perfected and made impervious to hacks, but the fact that there are thousands of payment channels now open is a good indicator that it is functional. The lightning network will provide the framework for solving Bitcoin’s scalability problem over a long term. It will allow Bitcoin to be useful as a currency no matter how high the price or transaction volume gets, and therefore the lightning network is essential for Bitcoin becoming a widely adopted global currency.

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