The first transaction for the Lightning Network, an additional layer that is expected to improve transaction speeds for bitcoin and make micropayments possible, was conducted last week. Three teams developed a proof-of-concept and announced that they had successfully conducted a payment on bitcoin’s network. (See also: What Is The Bitcoin "Lightning Network"?)
ACINQ, Blockstream, and Lightning Labs also released the first version of specifications for the network. The two transactions used to demonstrate the LIghtning Network were routing of Blockstream’s C-Lightning nodes to ACINQ’s fake coffee app Starblocks to ensure payment of 0.015 mBTC for a cup of “Blockaccinos” and the unlocking of a blogpost on content platform Yalls using ACINQ’s Eclair wallet for a small fee.
Lightning’s Promise: Micropayments and Fast Transactions
As its price has skyrocketed, bitcoin’s network has been plagued by delays, which result in higher transaction fees. (See more: Will Rising Transaction Fees Bring Down Bitcoin's Price?) The delays are mainly due to an increase in congestion due to the limited size of a bitcoin block and the resource-intensive nature of bitcoin mining, which makes it a slow process. (See also: How SegWit Made For A More User-Friendly Bitcoin.)
The Lightning Network’s innovation lies in postponing transaction validation, which typically occurs in real-time, by taking it offline. “If only two parties care about a transaction, it is not necessary for all other nodes in the bitcoin network to know about the transaction,” wrote the authors of a whitepaper introducing the Lightning Network concept.
A Hashed Timelock Contract (HTLC) between two parties enables deferral of broadcast of the transaction to the blockchain network and speeds up transactions. If the transaction is not broadcast within the timeframe defined in the contract, then it is considered null and void. The new layer will ease congestion on bitcoin’s network and enable direct micropayments between two parties with minimal fees.
“Because you are not required to fill a capacity that is very limited, like a 1MB block, the fees (for transfer and payments) will be very low, close to the marginal cost of delivering that service,” said Andreas Antonopoulos, an early bitcoin developer and advocate.
In turn, this will open up additional use cases for bitcoin, such as use of the cryptocurrency at retail point-of-sale terminals and for making instant payments. Currently micropayments are expensive on bitcoin due to the charges associated with custodians (who hold coins for users) and network congestion.
A Long Road Ahead
Last week’s experiment is just the first step in a long journey, however. It might be a while before a usable form of the Lightning Network emerges. For starters, there are very few developers working on enhancements to the network. There are also issues relating to the network’s security that need to be ironed out. Finally, the Lightning Network will need a slew of incentives to attract users to its service.
There are a bunch of competing apps, such as Paypal’s Venmo, which are already popular with users. To that extent, the popularity of the Lightning Network is also directly proportional to bitcoin’s popularity as a payment mechanism.