Bitcoin’s Lightning Network (LN) is expected to solve major problems, such as long transaction times and high fees, related to the cryptocurrency’s blockchain. (See also: What Is The Bitcoin Lightning Network?) But it is still early days in the network’s evolution. Bitcoin Magazine recently published a good primer on the network’s future directions. Here are three ways in which Lightning Network might evolve. (See also: Bitcoin's Lightning Network: Three Possible Problems).
Lightning Network transactions essentially occur in private channels between two parties and are not recorded on bitcoin’s main blockchain, unless one of the two transacting parties closes the channel. Each transaction needs to be pre-funded by at least one of the transacting parties and incurs a small fee for opening and closing. In some cases, the two parties can transact endlessly without their balance being recorded on the main blockchain. The scenario’s main utility is for frequent transactions conducted between two entities. (See also: Lightning Network: What Is It And How Can It Solve Bitcoin's Scaling Problem?)
But what about one-off and random transactions between two parties?
The opening and closing of transactions presents several problems because this means that a single party might end up with thousands of open channels that may be just be one-time transactions. According to estimates by Thaddeus Dryja, who co-wrote the original paper introducing LN, bitcoin’s blockchain can presently support at most 800 million users with LN channels because each micropayment channel requires a corresponding on-chain transaction. Submarine swaps could be a solution.
Formulated by Alex Bosworth, submarine swaps enable transfer of funds between bitcoin’s blockchain and lightning network using a middleman to make payments to an address on bitcoin’s blockchain. This means that the middleman can transfer bitcoin from an on-chain transaction to the Lightning Network and vice versa.
Splicing is an innovative solution to the problem of topping up funds between two channels. Currently, channels are prefunded by one or both of the transacting parties. Once the channel runs out of funds, both parties need to create a new, separate channel to continue their transactions. Splicing allows an existing channel to remain open while users top up or drain funds from it. It accomplishes this task by creating an on-chain transaction similar to the opening transaction on the LN channel between two parties. Transactions are updated at both locations until the on-chain transaction is confirmed. Subsequently, the LN channel can be updated and confirmed each time it runs out of funds by updating the previously-confirmed on-chain transaction. In addition to enabling withdrawal and topping up of funds, LN transactions also enable communication between on-chain and off-chain transactions, a problem that submarine swaps also aim to solve.
Atomic Multipath Payments
Transactions in LN are processed using a network of lightning nodes, which are responsible for fulfilling transactions conducted on the blockchain. While it is efficient, the system also presents a problem for individual nodes because it imposes fund balance requirements for them to conduct a transaction. Atomic multipath payments present a possible solution. They use balances from multiple hops in order to fulfill a transaction. Essentially, a single payment is sliced up into multiple small payments, which are then routed between hops. No single hop is required to have the transacting amount in full, except the start and end nodes. For example, a transfer of 100 mBTC may be split into two or three equivalent transactions that are routed between available LN nodes. The system is somewhat similar to the manner in which spending takes place on bitcoin’s blockchain in that the transaction is broken up into multiple small payments. But, as the magazine article points out, incomplete payments pose a problem because they would leave incomplete balances across several hops.
Hash Timelock Contracts, which expire after a certain period of time or number of blocks generated, have been suggested as a possible solution to the problem.
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