The Future of Bitcoin: What Lightning Could Look Like
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Ready to start building Dapps? Dive deep into blockchain development. After years of conceptualization and developmentthe first Lightning implementations are now in beta. As a result, more nodes are appearing online every day, a growing number of users are opening channels with one another, and some merchants even started to accept Lightning payments.
But of course, these are still the very early days of the Lightning Network. The Lightning Network consists bitcoin magazine 435 a series of payment channels. Each payment channel exists between two users, allowing funds to be sent back and forth between them. However, in this early stage of development, payment channels can only be funded by one of the two parties. The funding party must first make a transaction to his counterparty; only then can that counterparty return a payment within the same payment channel.
The Lightning Network white paperhowever, proposed dual-funded channels, for which a specification proposal has now also been made by ACINQthe company behind eclair.
As the name bitcoin magazine 435, dual-funded channels will let both users partly fund a payment channel by each depositing some bitcoin. This should bring more flexibility to the Lightning user experience, as users can immediately send as well as receive payment after having opened a channel.
In order to make a Lightning payment, bitcoin magazine 435 must deposit funds in a Lightning channel. Once in a channel, these funds cannot be sent to regular on-chain Bitcoin addresses unless the channel is first closed. This means that bitcoin in a Lightning channel is somewhat separated from bitcoin in a regular wallet, not unlike how money in a checking account is somewhat separated from money in a savings bitcoin magazine 435. One solution is Submarine Swaps.
Developed by Alex Bosworth but conceptualized by Lightning Labs CTO Olaoluwa Osuntokun even before thatSubmarine Swaps essentially let users send Lightning payments to a middleman on the Lightning Network; that middleman will send a corresponding amount of bitcoin to a regular on-chain Bitcoin address.
It also bitcoin magazine 435 the other way around: This makes it impossible for the middleman to steal bitcoin magazine 435 by not forwarding the payment. In agreement with the users, he could charge a small fee for his service.
The idea is simple. Any Lightning channel starts with an opening transaction, which ensures that both users consent to moving the funds in the channel. Once this new opening transaction confirms on the blockchain, the channel is topped up. This way, users can make on-chain transactions straight out of a Lightning bitcoin magazine 435. Each time a new payment is made, Lightning channels between users are updated to reflect their mutual balances.
The trick used to accomplish this currently includes a penalty for users who try to cheat by broadcasting an older balance presumably because that older balance would pay them more. Cheating users can lose all the funds they have in a channel. The problem is that the broadcasting of old balances is not always a cheating attempt.
There are a number of scenarios in which users can accidentally broadcast an older balance; for example, because of a software bug or a backup gone wrong.
In such scenarios, a complete loss of channel funds is quite a heavy punishment. First published on April 30,eltoo is the newest proposal featured in this article. If one user broadcasts an older transaction representing an older channel balanceher counterparty has some time to broadcast the latest transaction representing the latest channel balance. It would require that the entire chain of transactions be broadcast and recorded on the Bitcoin blockchain, more or less defeating the purpose of the Lightning Network.
Decker therefore proposed a soft-fork change to the Bitcoin protocol to introduce a type of hierarchy in these types of transactions: If this soft fork is adopted and activated on the Bitcoin network, Lightning users could create channels in both the current style and by using eltoo, depending on what they prefer.
While the Lightning Network is a second-layer protocol, the Bitcoin blockchain itself is still relevant for Lightning users for security purposes. Specifically, Lightning users must keep an eye on the blockchain to see if specific transactions are included. This can be resource intensive, in particular for mobile users.
Unfortunately, Bloom filters are rather privacy-unfriendly, as wallets essentially reveal all of their addresses to nodes on the Bitcoin network. They also have some scaling and usability issues, as each individual SPV wallet takes up resources from at least one full Bitcoin node. Compact client-side block filtering essentially inverts the trick that current SPV wallets use. Instead of wallets requesting transactions relevant to them by creating and sending out a Bloom filter to full nodes, full nodes create a filter for all Neutrino wallets.
The Neutrino wallet then uses this filter to establish that the relevant transaction did not happen — which is really all bitcoin magazine 435 users need to know to be sure they are not being cheated. If the filter produces a match, Neutrino fetches the relevant block to see if the match really concerns the exact transaction instead of a false positive.
Interestingly, while this trick was designed with the Lightning experience in mind, it could be utilized to benefit regular bitcoin magazine 435 wallets as well. To avoid being cheated, Lightning users must keep track of potential on-chain transactions that could be relevant to them. If they forget to check, it creates a security risk. As the name suggests, Watchtowers could let users outsource blockchain bitcoin magazine 435 to third parties.
Current Watchtower designs are bitcoin magazine 435 set in stone but would roughly work like this. Whenever users update bitcoin magazine 435 channel, they send a small data package to a Watchtower. However, if the relevant transaction shows up in the Bitcoin blockchain, the Watchtower bitcoin magazine 435 use the hint to recognize it.
This penalty transaction sends all funds in the channel to the user that is being cheated. Or in the case of eltoo, it just broadcasts the correct channel balance.
The penalty transaction can also be designed to let the Watchtower claim part of the funds as a reward, as an incentive to do its job. Users can outsource channel monitoring to multiple Watchtowers. What makes the Lightning Network a network is that the payment channels between users are interconnected.
However, right now a single payment must be routed over a single route. If one user wants to pay 5 mBTC to another, not only must he have 5 mBTC in a single channel, bitcoin magazine 435 the middlemen on the route must also have 5 mBTC ready in a channel to forward. The bigger a bitcoin magazine 435 is, the smaller the odds of this being the case.
A challenge to realize this solution is that Lightning payments can fail, which would in this case mean that a payment is made partially. Partial payments can easily be a bigger problem than no payment at all, however: The solution to this problem is that AMPs use an extension to the hash time-locked contractswhich are already used along Lightning routes and involve passing secret data along a network. Using a trick similar to the one used by deterministic wallets which generate multiple Bitcoin bitcoin magazine 435 from a single seedthe smaller pieces of a larger payment can only be redeemed by the payee if all of them are: The Lightning Network is designed as a scaling layer for Bitcoin magazine 435.
Already, a small Litecoin Lightning Bitcoin magazine 435 exists, and more Lightning Networks are likely to follow. In other words, a user can send bitcoin, and as long as a node on the network is willing to make the exchange, another user can receive the payment bitcoin magazine 435 litecoin.
Of course, this also means that users can send such payments to themselves: In effect, the Lightning Network could establish a network of trustless cryptocurrency exchanges.
For more information on this topic, see: How the Lightning Network Extends to Altcoins. The main benefit of the Lightning Network is arguably its bitcoin magazine 435 to vastly increase bitcoin magazine 435 upper limit of bitcoin transactions without burdening the Bitcoin network. As long as two users both have funds in their channel, they can pay each other a virtually unlimited number of times, while only requiring two on-chain transactions: Still, two transactions per payment channel could add up if Bitcoin and the Lightning Network gain more adoption over time.
Loosely based on an earlier Lightning-like proposal by Decker and Wattenhofer fromChannel Factories are a type of payment channel that can exist among many users. Meanwhile, like any payment channel, a Channel Factory only ever requires two on-chain transactions. If Schnorr signatures are implemented on Bitcoin, these transactions could be quite compact, even if it involves many users.
Participants within a Channel Factory can open and close a virtually unlimited number of Lightning channels with each other, without requiring bitcoin magazine 435 additional on-chain transactions. By doing so, they could, in theory, bring the number of required on-chain transactions for the Lightning Network down by a magnitude.
About Terms of use Bitcoin magazine 435 Store Contact. All What Is Bitcoin? What Is a Blockchain? What Makes Bitcoin Valuable? What Are Bitcoin Wallets?
Is Bitcoin a Good Investment? What is Bitcoin Mining? What Is an ICO? The Future of Bitcoin: Facebook Twitter LinkedIn Email. These are some of the more important Lightning projects currently in development. Submarine Swaps In order to make a Lightning payment, users must deposit funds in a Lightning channel.
But there are solutions to make switching between Lightning and on-chain payments more seamless. Eltoo Each time a new payment is made, Lightning channels between users are updated to reflect their mutual balances. Compact Client-Side Block Bitcoin magazine 435 While the Lightning Network is a second-layer protocol, the Bitcoin blockchain itself is still relevant for Lightning users for security purposes.
Watchtowers To avoid being cheated, Lightning users must keep track of potential on-chain transactions that could be relevant to them. Atomic Multi-Path Payments What makes the Lightning Network a network is that the payment channels between users are interconnected.
