Looking ahead Lightning Payment in 2025

Lightning Payment in 2025

Source: River Finance

Since its inception, the Lightning Network has grown significantly. Many optimizations have made the experience of Lightning payments smooth and seamless, but it is not without flaws. The user experience today may not be far from our goals, but as developers, we need to face this challenge: what can we do to improve the user experience?

In this article, we will explore what the user experience of the Lightning Network might look like based on the solutions being developed by many smart minds today.

We will first outline the current user experience and the pain points associated with it. Then, I will show how with the help of technologies being implemented and actively developed, the future of the Lightning Network is possible.

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What challenges will the Lightning Network face in 2023?

First, let’s address the elephant in the room: today, a significant number of transactions on the Lightning Network are done through custodial wallets. Rough estimates suggest that close to 90% of transactions on the network are done through applications where users have to trust a custodian to safeguard their private keys.

Why do most users choose custodial services? It’s because of convenience, a simple user experience, and the challenges involved in using non-custodial Lightning wallets. We can categorize these challenges into three major categories:

Technical ability

If users are required to take more actions than traditional payment methods to achieve the same goal, most users will lose interest. For example:

– Users must stay connected to send and receive payments. Today, one big reason for Lightning payment failures is that the recipient is offline, occurring in approximately 0.5% to 1% of all Lightning payments.

– Users must share invoices with each other outside of the protocol (via text, email, instant messaging, etc.) to initiate and request payments, which is a cumbersome process.

– Users running their own Lightning nodes must be able to allocate Bitcoin across different channels. Opening a channel to an inactive peer node may result in funds remaining idle and not being utilized effectively.

This is the opportunity cost of capital on the Lightning Network: if your capital is allocated to an unresponsive peer node, those funds cannot be used to route payments (and generate revenue).

Technical knowledge

These challenges require users to have a deep understanding of the Lightning Network and/or unrelated protocols, which may not be pursued by the average Lightning Network user.

– Setting up a Lightning node requires a certain level of technical ability. A Lightning node must always be online to maintain connections with the rest of the network.

– If a user’s node goes offline, the Bitcoin in their channels may be lost or stolen.

– A node operator must constantly balance liquidity between their channels. If you don’t have funds on your side of the channel, you cannot send payments. Conversely, if all the funds in the channel are on your side, you cannot receive payments.

– When a payment fails or is blocked, node operators must be proficient in using the command line interface to resolve the issue.

– Backing up a node is complex – node operators need to store their seed phrase and channel state, otherwise if they lose connectivity, existing channels may be closed.

Technical Limitations

The Lightning Network technology has not been fully deployed. Some technical issues still need to be addressed.

– We do not yet have a standardized, user-friendly technology that can send payments directly to anyone without relying on centralized servers.

An example is a unified QR code or an experience like LianGuaiynym.

LNURL and Lightning address are options, but they also have drawbacks as they still rely on someone running a server somewhere.

– Because a Lightning node must be online all the time, the signing key must also be online. This creates a comprehensive security risk.

– The cost of opening and closing channels is directly related to on-chain transaction fees; during periods of high demand for on-chain transactions, fees can rise rapidly, making channel switches expensive.

To avoid this, users must establish channels before fee spikes, although it is not easy to decide when to open channels.

– Privacy on the Lightning Network is not yet sufficient.

When you request a payment on the Lightning Network, you have to expose some information, such as the node’s IP address.

Although senders (in general) have better privacy than receivers, they also expose some information during the transaction process.

Based on the way Lightning nodes communicate with each other, third parties can easily determine on-chain UTXOs related to their channel funding transactions. If such monitoring is carried out on a large scale, it may lead to the de-anonymization of the network.

(Translator’s note: The problems described here by the author are all real, but most of them are not relevant to the ordinary user’s experience with the Lightning Network. In order to use (trustless) Lightning payments, your Lightning node does not need to be online all the time, and the self-custodial Lightning wallet you use (which is actually also a Lightning node) only needs to be online when receiving and sending payments; in addition, you need to regularly open these wallet applications to ensure that your counterparty does not defraud you. The biggest challenges for ordinary users come from the points mentioned above:

(1) Need to stay online when receiving/sending payments;

(2) Lack of a way to receive multiple payments of any amount (payment invoices are one-time only);

(3) Liquidity issues with incoming/outgoing transactions, i.e., if your counterparty does not have a balance in the channel, you cannot receive payments. Currently, hosted wallets that support LNURL eliminate these issues for users, but at the cost of trusting the host. Wallets with LSP primarily address the third issue and have greatly improved the user experience (users do not need to manage channels themselves), but the resolution of the first two issues still relies on technological advancements – spoiler alert: they can be solved. However, it should be noted that the growth of the entire Lightning Network and the improvement of the user experience also depend on node operators being able to address these pain points, because the Lightning Network is a network.)

If most (if not all) of these issues can be resolved, what would the Lightning Network look like?

The Lightning Network User Experience in 2025

Here, we want to emphasize the potential for the Lightning Network user experience. This is not a concrete roadmap, but rather a prediction of the possible user experience after certain upgrades have been deployed in the future.

Channel Splicing, Making Lightning Channels Invisible to Users

We expect that “channel splicing” will be implemented on most Lightning wallets in the coming years, but what does this mean for network participants?

First, node operators will be able to add/remove funds to/from channels without having to pay excessive on-chain fees, and without having to close and reopen channels. Because resetting channel capacity becomes cheaper, node operators – or automated software – will be able to better control their channels, resulting in higher payment success rates.

Lightning Service Providers (LSPs) can also benefit from the reduced (channel resetting) costs and can offer better user privacy. LSPs that attempt to optimize user privacy can consolidate user funds and batch process channel resetting transactions, thus obfuscating the source of funds.

As channel splicing becomes more common, the migration of funds between the Lightning Network and the Bitcoin chain will become cheaper and easier, and wallets will display a unified balance – as users no longer need to differentiate between on-chain and off-chain funds.

When on-chain fees are high, LSPs can also manage user channels cheaply by combining splicing and atomic rebalancing on sidechains such as Liquid.

(Translator’s note: The Phoenix mobile wallet already supports channel splicing; their developers have detailed the experience improvements this brings to users.)

Lightning Service Providers, Lowering Entry Barriers

In the visible future, LSPs may become a critical component of the user experience, as they can help users hide complexity. Additionally, LSPs can reduce the capital requirements for operating a node; they can serve as gateways for users to enter the network.

The magic of the Lightning Network is its instant settlement capability, but failed payments and other pain points can weaken the user experience. Through LSP-operated infrastructure, such as services and/or the nodes themselves, users can interact with the Lightning Network more directly. LSPs can eliminate the need for user interaction with the infrastructure by providing a “cloud-based node” mode, where users still control their funds but do not need to interact with the node. LSPs can also offer a “light” version of this service that consumes less power on mobile devices, or a combination of both modes.

If more capital is transferred to the Lightning Network, users must be able to recover their Lightning nodes (or Lightning wallets) in a similar way to recovering on-chain wallets – for example, by entering a continuous string of 12 or 24 words in the application. Service providers can allow users to store encrypted backups of their Lightning wallets in the cloud. When a user’s device is damaged or compromised, the encrypted cloud backup can be easily imported into a new device.

Eliminating manual operations

If someone has to take extra steps to benefit from Bitcoin (or any other magical technology), they are likely to give up on these steps.

There is currently a problem that needs to be solved: LSP can solve the requirement of “staying online” by allowing offline users to receive payments, making the user experience closer to existing payment solutions.

As Bitcoin developers receive more funding support, more solutions will emerge that allow users to receive payments independently without relying on external services.

The payment IDs currently used, such as Lightning Address, are available but are supported by custodians in almost all cases. Users need to be able to receive payments using reusable QR codes without relying on third parties. Reusability is crucial: copying, pasting, and sending invoices to payers involve too many steps. If there is a simple solution, all Lightning Network users can benefit from it.

– Image source: https://bolt12.org/ –

In the above image, the smaller and simpler QR code, called “offer,” allows the wallet to handle the invoice request part of the payment process without user guidance. Another advantage of the offer is that it can carry information such as currency, vendor name, quantity limits, and the path to reach the recipient’s wallet.

Many people prefer a simple onboarding process, which means they may prefer devices with trusted service providers. One example is the Fedimint protocol: a group of people manage something called the “e-cash mint.” This pattern provides better privacy and a range of additional products and services, such as estate management, private mining pools, decentralized dispute resolution, synthetic dollar positions, and more. Because the Lightning Network is built into these communities, users can leave and join different alliances based on their own judgment, and the migration cost is low.

Privacy as a standard feature in the Lightning Network

In order for privacy to become a standard feature of the Lightning Network, the technologies that achieve privacy must be hidden from users – meaning that users can benefit from them without taking any action. Application developers and service providers must act behind the scenes, such as isolating on-chain transactions from Lightning transactions, and so on.

Interfering with monitoring in the Lightning Network

It will become very difficult to determine whether a transaction on the blockchain is a Lightning Network transaction, as new technologies increasingly make them indistinguishable from other Bitcoin transactions. With the implementation of more Taproot technologies, features such as signature aggregation can hide the information of a payment channel and the number of users involved in the transaction. (Translator’s note: This is related to the introduction of Schnorr signatures in the Taproot upgrade. Under certain conditions, it can aggregate the signatures of both parties in the channel into one signature, making it impossible for outsiders to distinguish this transaction from a regular personal wallet payment in the case of cooperative channel closure.)

If Taproot is widely implemented in wallets, users can achieve better privacy when making payments to people outside their peer nodes. Currently, such multi-hop payments have a payment ID (the hash value of the payment) that is known to each intermediate node on the forwarding path. However, some ways in which Taproot handles signatures can be used to create “dummy” payment IDs that prevent forwarding nodes from seeing the full picture, with only the sender and receiver having a clear understanding of the payment. (Translator’s note: This is also related to Schnorr signatures, and the related technology is called “PTLCs”, where the information obtained at each hop is different.)

Lightning Network users may no longer need to worry, or even know, the specific path their payments go through, but currently, every node on the entire path can see where the payment originated from (Translator’s note: This is a misconception, as intermediate nodes do not know the origin of the payment). In the “Canadian Mounties” incident, we can see that the government can and will seize funds, freeze fiat bank accounts, and even scrutinize those who oppose them.

LSPs can anonymize the source of a Lightning transaction by providing a service as an intermediary for blinded routing. In this way, the LSP only knows the part of the payment path it constructs, while the sender knows the other parts; the intermediate nodes and the destination of the entire path will be “blinded”. This model will provide stronger security, and users don’t need to participate in it at all.

(Translator’s note: The technology mentioned here by the author is “path blinding”. Currently, the recipient of a Lightning payment must expose their network location to the payer so that the payer can find a payment path to reach them. The idea of “path blinding” is that the recipient can provide an entrance to a path that can reach themselves, thereby concealing their true location. The payer only needs to find the path to reach this entrance node. Therefore, contrary to the author’s understanding, blinding the path is more about protecting the privacy of the recipient. As for how much information the LSP knows, it depends on the position of the LSP on the path from the entrance node to the recipient node.)

Using the Lightning Network as a virtual private network

Wallets can creatively provide privacy-enhancing features. For example, wallets and LSPs can act as “invoice intermediaries” for users; the wallet creates an invoice and forwards it to an LSP, which then completes the payment. For the recipient, it appears as if the LSP has paid them, and this reliance allows the sender to have better privacy without changing their familiar payment process. Tony Giorgio, Co-founder of Mutiny Wallet, pointed out that this approach allows wallet users to hide among all the users of this LSP.

Some Lightning Network users may want stronger privacy. Many cases of transaction mixing have proven to be effective methods of enhancing privacy, but they require manual operation by users and may incur significant on-chain transaction fees. Since LSPs already operate servers, they are in a favorable position to provide users with transaction coordination and collaboration services. Service providers can create privacy-enhancing checkpoints: when users open or close channels, increase or decrease channel capacity (as described in the “Channel Splicing” section above), or do so when users pay for goods or services.

Lightning Network Enhances E-commerce

Suppliers can provide customers with a return period through Lightning payments. Customers can pay for a special invoice at checkout, retaining the ability to “revoke” the transaction until the goods and services are delivered. This was not previously possible.

Security is Key for Institutional Adoption

In order to encourage more institutions to join the Lightning Network, it needs to be easy to transfer funds from offline, cold wallets to a Lightning channel. Taproot channels enable this use case without sacrificing security.

Furthermore, this allows institutions to securely store large amounts of funds on the Lightning Network. They will be able to use customized hardware to protect themselves from the risks associated with wallet connectivity.

Conclusion

The Lightning Network has proven its utility in instant settlement payments – but it is not without its flaws. However, network participants can remain optimistic about addressing UX barriers; some of the brightest developers are tirelessly improving the user experience.

As more technical solutions emerge and more capital is invested in the Lightning Network, LSPs may play a larger role in helping end users overcome complexity. Technological advancements will also benefit self-custodial users and make the entire network closer to a “just works” experience.

There are many exciting things happening on the Lightning Network; all predictions in this article are based on current solutions being developed. The more developers and businesses focus on optimizing the user experience, the more participants and capital the network will attract, and the better the user experience will be for everyone.

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