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Scaling With Lightning Network

One of the most closely watched technological developments on the Bitcoin protocol in 2019 is the Lightning Network. The second layer scalability solution built atop the Bitcoin blockchain is making strong inroads from an adoption standpoint as the total capacity of the total network capacity and the total number of payment channels are growing at an exponential pace since its launch in mid-2018. Based on the most recent stats, the network can facilitate Bitcoin payments worth $2 million dollars for almost near-zero transaction fees. This is more than a 200% increase from the $700k capacity that the network had until a few months ago.  

As we have explored in detail earlier, every blockchain needs to make trade offs between three orthogonal aspects – scalability, decentralisation and Consensus. Bitcoin’s scalability travails and occasional high-fee requirements mean that the base layer can almost never be used for micropayments. This severely limits its prospects as a medium of payment. The base layer offers strong immutability and sovereign-grade censorship resistance features that micropayment transactions in general do not require. To enable low-cost microtransactions for Bitcoin, Lightning Network was developed as an off-chain solution which enables two parties to open a payment channel and make almost zero fees payments with instant confirmations between themselves. For example, if Alice and Bob frequently transact with each other, they both can open a payment channel and transfer BTC to an escrow-like account that holds their funds and the opening balances will be recorded on the Bitcoin blockchain. Alice and Bob can now transact with each other any number of times, provided they have enough funds in their escrow accounts, instantly for de minimis fees. When Alice and Bob decide to close the channel, the final balances will be recorded on the Bitcoin blockchain upon the closure of the payment channel. Instead of recording every small transaction between Alice and Bob on the blockchain, only the opening and closing balances are recorded on the blockchain while the intermediate transactions are facilitated through an off-chain channel, providing more privacy, instant confirmations and near-zero cost. One distinguished feature of the lightning network is that even if the two parties that want to transact with each other do not have an open channel between them, transactions can be routed through a third party node, provided the third-party channel has enough capacity to facilitate the transactions.

What to Expect of Lightning Network in 2019:

We expect the strong growth in network capacity and payment channels that we witnessed in 2018 to continue into 2019. While Lightning Network is the best possible fix for Bitcoin’s lack of scalability, the protocol needs to overcome some of its shortcomings to truly propel Bitcoin’s mainstream adoption as a currency for micropayments. One of most common criticisms leveled at this second layer solution is that the probability of a successful payment decreases drastically for large-ticket payments. The incidence of failed transactions for high-value payments could be remedied by lifting off channel capacity limits and the introduction of multi-path payments, which could finally happen in 2019, according to the team. The next development that pushes Lightning much closer to retail adoption is the integration of the protocol with online retail businesses, providing retail users an option to pay in BTC for insignificant fees and with instant confirmation.

Meanwhile in Crypto Wonderland….

“Samsung’s Blockchain Plans Progress” Korean electronics giant Samsung is set to launch its own blockchain and cryptocurrency-based smartphone for which the company has recently filed a trademark with the UK’s for Intellectual Property Office. The filing details that Samsung is considering integration of a cryptocurrency wallet, to slot into its smartphones. In December 2018, Samsung had filed three trademark applications for blockchain and cryptocurrency software in the EU.

“Chile’s TDLC Votes in Favor of Crypto Exchanges vs Banks” Tribunal de Defensa de la Libre Competencia (TDLC), the Chilean anti-monopoly court, has again granted protection to local cryptocurrency exchanges by forcing banks to keep their accounts open. The TDLC has responded to a previous decision taken by the Chilean Supreme Court in early December. The country’s top court then insisted that banks had legal rights not to provide services to crypto exchanges, as they are not regulated by Chilean law and might be associated with money laundering.

“BitTorrent CEO Quits While Company Introduces Token” Longtime BitTorrent executive and recent CEO Rogelio Choy left the company just 6 months after its acquisition by Tron’s Justin Sun. Choy’s departure comes just as BitTorrent is doubling down on blockchain tech – the company announced Thursday that it is adding a crypto token to the uTorrent client. The token will initially allow uTorrent users to achieve faster download speeds and ultimately, the company plans to use the token for other use cases as well.

“Tokenized Stock Trading Finally?”Dx.exchange is launching a new cryptocurrency platform that tokenizes the stock market. The Estonia-based fintech company is the first non-CFD crypto exchange to offer stock trading that are tokenized on the blockchain. Publicly listed companies like Google, Facebook, Intel and Apple will be listed on DX.exchange. This is the first time securities can be purchased directly with popular cryptocurrencies like Bitcoin.

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