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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