Category Archives: Lightning Network

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Andreas Brekken’s Experience Running the Biggest Lightning Node

Andreas Brekken, the operator of shitcoin.com, 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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Analyst Mati Greenspan Remains Bullish on Bitcoin as Wall St Builds Blockchain “Bridge”

In a recent Bloomberg broadcast, Mati Greenspan, eToro senior market analyst, saw positive signs for cryptocurrency, saying that the market was about to receive a new flow of liquidity from Wall Street.

Among many issues faced, volatility may not be one that Wall Street giants are used to but Greenspan says it has been in a consistent state of play since the very beginning.

He said,”The dip we’re talking about is actually nothing new for Bitcoin, as far as percentage terms go. If we look at it historically we’ve seen these type of pullbacks before, and definitely Wall Street is getting involved and they are building the bridges as we speak. Whether they go full on Bull or full on Bear, we don’t know, and they are ready to inject new liquidity into the market.”

Greenspan went on to explain that Wall Street missed the boat when it came to last year’s all-time high, with Chicago exchanges CBOE and CME launching Bitcoin futures right at the precipice in the Bitcoin high.

He reflected that the future of Bitcoin in the financial ecosystem would remain unknown, pointing out that the cryptocurrency operates as an individual entity, not part of the central banking monopoly.

Lightning Network

In December and January, the Bitcoin network experienced congestion due to the newfound popularity of the currency, inevitably causing some concern for the future of the coin.

Compared to two years ago when fees were next to nothing, the reporter commented that “it takes forever to get it through the system” during congested periods.

“Since then the price has come down, the interest has come down and right now if you were to send a transaction it would be instant, comparable to many years ago, this is why we need more liquidity in the market,” came the reply.

A new scaling proposal is currently being rolled out for Bitcoin in the shape of the newly-developed Lightning network protocol. It effectively creates a layer on top of the blockchain, enabling fast and cheap transactions which can settle payments off the blockchain.

 

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