Will the Bitcoin Lightning Network make a breakthrough in 2020?

Author: Pan Zhixiong

Source: Chain News

This article focuses on:

  • The Lightning Network is probably the most important technology development direction of Bitcoin in 2019. The most influential event is the "Lightning Torch" activity spreading around the world;
  • On the positive side, Lightning Network launched functions such as watchtowers and multi-path payment in 2019, and the number of wallets has doubled;
  • On the negative side, Lightning Network suffered a software defect in 2019, and the network capacity dropped by 27%;
  • Price instability may be the biggest challenge for Bitcoin as a payment tool, while USDT or other stablecoins may be the solution;
  • Commercial applications will be the most noteworthy direction of Lightning Network in 2020.

In 2019, the well-known Bitcoin Layer 2 technology Lightning Network has experienced ups and downs, and many people are looking forward to it can help Bitcoin expand its usage scenarios. Although the "Lightning Torch" activity at the beginning of the year made everyone confident about the development of the technology, the application layer is developing very fast, the number of wallets has doubled, and basic functions such as watchtowers and multi-path payment have been added, but they still face Due to the extremely low penetration rate, even many supporters have chosen to monetize rather than store in the channel of the Lightning Network during the bitcoin price recovery.

Regarding the intrinsic value of Bitcoin, the current mainstream views are divided into two categories, one is to compare Bitcoin as a value storage asset, and the other is to hope that Bitcoin can become a payment tool as a transaction intermediary. For the Bitcoin payment scenario, the Lightning Network of Layer 2 is its most important research and development direction.

Lightning network technology is a payment channel based on Bitcoin script, which strips high-frequency payment scenarios from blockchain transactions to the off-chain, and then users can make second-level payments like Alipay or Paypal, with very low fees .

The activation of Bitcoin Segregated Witness in August 2017 resolved the last technical limitation for the Lightning Network. Since then, Lightning Network has not only been a research paper, it has entered the real development stage. Before 2018, some R & D teams implemented the first trial on the mainnet.

In 2018, the research and development of Lightning Network focused on the development of the basic tool layer. Three independent teams develop Lightning Network clients in Scala, C, and Go. These are the implementations of the basic protocols, and there is still a long way to go for ordinary users, such as lack of fraud protection and user interface. Only a few teams have launched a beta wallet with a user interface and support for Lightning Network.

ACINQ is one of the Lightning Network development team and has released the first Android platform Lightning Network Wallet Eclair

In early 2019, as the Lightning Network gained more and more attention, the number of participants also increased significantly.

The number of Lightning Network nodes is more than 5000, the number of channels is close to 18,000, and the total network capacity is more than 500 BTC.

The highlight of the Lightning Network in 2019 is the "The Lightning Torch" campaign initiated by anonymous Bitcoin holder hodlonaut. Nearly 300 users around the world pass Bitcoin funds through the Lightning Network around the world. Celebrities in the industry such as Jack Dorsey, the CEO of Twitter, Andreas Antonopoulos, the author of Bitcoin Mastery, Anthony Pompliano, the founder of investment company Morgan Creek, and Zhao Changpeng, the founder of Binance.

Twitter CEO Jack Dorsey participates in Lightning Torch

Due to the current limitations of the Lightning Network, the event raised about 0.41 bitcoins and was eventually donated to the "Venezuela" charity organization "Bitcoin Venezuela". This experiment is not only for public benefit, but also means that Bitcoin's Lightning Network is feasible as a global payment method.

Lightning Network has also entered the application layer development stage in 2019, and the number of wallet tools has doubled. Although it is rare to see anyone actually use it, it is even rarer to have a supportive business.

According to the Bitcoin wallet information compiled by LightningNetworkStores, at the beginning of 2019, there are about 6 wallets supporting the Bitcoin mainnet's Lightning Network. These apps have user interfaces and can be used directly. By the end of 2019, this number has reached 18, although some of the apps have announced the suspension of development.

Part of Lightning Web Wallet

Exchanges are important players in popularizing the Lightning Network

Cryptocurrency exchanges are also exploring the deployment of the Lightning Network. The ability of exchanges to bring more users to the Lightning Network is particularly important.

Bitfinex was the first crab eater on the exchange. Bitfinex began supporting the Bitcoin Lightning Network in early December 2019. Users can deposit or withdraw BTC on their accounts through the Lightning Network, becoming the first mainstream cryptocurrency exchange to support the Lightning Network.

Bitfinex CTO Paolo Ardoino said at the time that he was also considering bringing its USD stablecoin USDT and gold stablecoin Tether Gold to the Lightning Network.

Just after Bitfinex supports Lightning Network deposit or withdrawal of BTC, more than 800 Lightning Network transfers have occurred in a week. Among them, 600 recharges were made, and the total recharge amount exceeded 7 BTC.

There is no doubt that more and more exchanges will join this rank in 2020, such as Coinbase, which has been publicly planned.

As technology upgrades progress

Lightning Network technology upgrades have also been ongoing. The core technology of Lightning Network has finally completed a basic function in 2019, and the development team calls it the "Watchtower". This is a real-time online transaction anti-fraud monitoring facility. The launch of this feature means that users need not worry about the loss of funds that this technology may bring.

The watchtower was first implemented in LND by Lightning Labs, one of the Lightning Network development teams

To explain briefly, the Lightning Network uses the concept of Hash Time Lock (HTLC). The two parties of the transaction need to deposit a part of the funds into a contract and broadcast it to the Bitcoin main network. Then the two parties need to exchange data outside the main network and continue to Update the latest balance. If one party updates a non-final state balance to the main network, if the other party is not online at this time, a capital loss may occur. And this is what the watchtower is responsible for, real-time monitoring for fraudulent transactions in the Lightning Network, if it exists, help users correct the problem, and let fraudsters lose all their funds.

A research report by BitMEX Research shows that the total number of frauds currently failing in the Bitcoin Lightning Network is about 2 Bitcoins.

With the large-scale deployment of watchtower technology, this type of fraud will disappear.

Because this is an early technology, software defects are unavoidable. Paradoxically, if the user uses an earlier version of the client, because the code is open source, it may be exploited by people to discover vulnerabilities, but if the latest version of the client is used, it may also be because it has not passed rigorous testing and security review processes. Encountered unknowable problems.

Rusty Russell, one of the Bitcoin Lightning network developers and specification designers, reported a vulnerability against the Lightning Network, which could lead to the loss of funds and have an impact on the three current implementations, with c-lightning less than 0.7. 1 version, lnd is less than 0.7 and eclair is less than or equal to 0.3.

Therefore, at this stage, it is not recommended for entry users to try Lightning Network. Not only is there an implicit risk, but the user experience is also poor. For geeks, it's not recommended to invest too much money.

Application development

Beyond security, the development of Lightning Network in 2019 has encountered the biggest setback in history. We can evaluate the development of the Lightning Network by observing the number, capacity, and number of open channels.

According to statistics from the Bitcoin Visuals website, although the number of Lightning Network nodes has been slowly rising, during the period from May to October 2019, the Lightning Network capacity has dropped by nearly 27%. Lightning Network developer Rusty Russell said that the decline in Bitcoin Lightning Network capacity may be related to the increase in Bitcoin price.

Perhaps many currency holders still believe that cashing out during the bull market is more practical than putting BTC in a place where there are not many application scenarios . The developer of the Bitcoin community, William Verbal, was not optimistic about the current Layer 2 solution, and closed the previous development of the Lightning Network-based application to adjust the future development direction.

But the infrastructure of Lightning Network will not stop with these problems.

Blockstream's Lightning Network client c-lightning released version 0.8.0 at the end of the year. In addition to connecting to the Bitcoin mainnet by default, it also added multi-part payments, which will provide unified users. Experience, users will be able to use it to combine the capacity of Lightning Network channels.

Blockstream can't wait to remove the "testnet" label for Lightning Network . By default, connecting to the mainnet means that they are becoming more confident in their clients. The introduction of the multi-path payment function will gradually improve the user experience.

Bockstream is not only one of the development team of Lightning Network, but also develops Bitcoin sidechain Liquid

Commercial platforms have also been involved in the development of Lightning Network. At The Lightning Conference, the most important Lightning Conference this year, many leading developers and startups in this field also discussed and communicated around Lightning Network. Notable among them is Escher, the platform of asset management company Iterative Capital.

Escher is a product that provides users with instant exchange of Lightning Network and U.S. dollars. Developers can also integrate the tool into their wallets. Through the application Escher Hub, users can directly purchase Bitcoins to Lightning Network addresses or sell Out of Bitcoin. Escher's integrated payment network, Zelle, will provide instant delivery of up to $ 2,000 at a time, and the integrated settlement service ACH will provide up to $ 2 million per day.

Escher app preview

This will undoubtedly become an important infrastructure, which directly opens up all the barriers between the Lightning Network and the US dollar, without time or capital restrictions. This may be the first commercialization attempt related to the Lightning Network.

Highlights of 2020 Lightning Network

If 2017 is the beginning of Lightning Network, 2018 is the development of Lightning Network's basic technology, and 2019 is the gradual rise of Lightning Network applications, then 2020 will be the trial of Lightning Network on the road to commercialization. Specifically, we focus on the development of Lightning Network in these areas:

  1. Increase in Lightning Network Deposits and Withdrawals
  2. Wallet experience is further enhanced, more mainstream wallets support Lightning Network
  3. More and more online stores will support Lightning Network payments through payment processors like OpenNode

Bitcoin payment processor OpenNode

Of course, due to the uncertainty of the Bitcoin price, most Bitcoin recipients, such as merchants, are likely to directly exchange back into USD or RMB, and they do not need to bear the corresponding Bitcoin price risk. So the biggest obstacle to using Bitcoin itself as a payment function is that the price is too volatile . If you can run cryptocurrencies with relatively stable prices, such as USDT anchoring the USD price, on the Lightning Network, it will be more likely to expand adoption rates. I believe this is also an area that developers and business scenarios are considering and exploring.

This will be a long road to development. Just as Xiong Yue, the dean of Binxin Research Institute, said in an interview with Lianwen during an online AMA event, Lightning Network will make great progress in 2020, but it will be difficult to achieve large-scale applications. He said that the Lightning Network needs a long time to improve, "Bitcoin Lightning Network should be undervalued in the short term and overvalued in the long term."