The Lightning Network is revolutionising Bitcoin scalability by establishing itself as the primary payment rail bridging various Layer Two projects together. This interconnected ecosystem is fostering cross-compatibility, thereby promoting seamless, fast, and low-cost transactions across different Bitcoin Layer Two projects.
With the recent announcement that Simple Bitcoin Wallet has decided to remove its support for Bitcoin’s Lightning Network, many critics of the Lightning Network have claimed that this decision demonstrates the shortcomings of the layer two payment network for Bitcoin.
Critics have claimed that Lightning’s UI is difficult for regular users to take advantage of in a self-sovereign way, by running a node and managing their own channels and liquidity. This has led to the majority of current Lightning Network users to employ custodial Lightning wallets like Wallet of Satoshi, Tippen.me, or Blink. Many Bitcoiners believe that self-custody is central to Bitcoin’s value proposition, and see this development as less than desired.
When the Lightning Network was launched, it was envisioned as the solution to one of Bitcoin’s most pressing challenges – scalability. It was promised to allow Bitcoin users to conduct small transactions, like buying a cup of coffee, instantly and with negligible fees, a far cry from the slow and often costly transactions associated with Bitcoin’s main chain.
By creating a secondary layer of off-chain payment channels, the Lightning Network was designed to significantly scale Bitcoin’s transaction capacity, alleviating congestion and reducing fees. This innovation was intended to transform Bitcoin from a purely speculative asset or “digital gold” into a viable medium of everyday exchange, thus fulfilling the original vision of peer-to-peer electronic cash as outlined in the Bitcoin whitepaper.
The only problem is, six years later, the take-up of Bitcoiners using Lightning Network to buy their coffees has been slower than expected. It appears that Lightning Network has not seen a huge influx of Bitcoiners making small purchases daily. Instead, Lightning is actually scaling Bitcoin in a way that nobody predicted.
Lightning appears to be evolving to become the layer that connects all the other Bitcoin layer two and three projects being rolled out to scale BTC for mass adoption. So instead of Lightning being the protocol we use for buying a coffee, it may be the layer which E-Cash, Tokenisation, Statechain Swaps, and Smart Contracting layers all use to send BTC back and forth to each other instantly. End users may not directly interact with Lightning much at all.
A plethora of layer two and layer three projects are being developed on top of the Bitcoin blockchain, each promising to enhance Bitcoin’s capabilities in various ways. Layer two solutions like the Lightning Network offer significant improvements in transaction speed and cost, making micropayments feasible by creating a network of payment channels that allow funds to be transferred off the main chain.
Similarly, Liquid Network, a Bitcoin sidechain created by Blockstream, provides confidential and secure transactions ideal for larger transfers and trading, as well as privately funding the liquidity for Lightning channels. Sidechains like RSK (Rootstock) and Mintlayer are enabling smart contracts on Bitcoin, extending the utility of the network beyond simple transactions, by adding capabilities like Decentralised Finance (DeFi), native BTC-backed stablecoins, Decentralised Exchanges (DEXs) and more.
Layer three projects are even more innovative, with concepts like RGB and DLCs (Discreet Log Contracts) building advanced, DeFi applications on top of layer two solutions. These innovations leverage the security of Bitcoin’s underlying blockchain while providing scalability, versatility, and utility that extends far beyond Bitcoin’s original design.
The Lightning Network is proving instrumental in establishing connections between various groundbreaking projects in the Bitcoin ecosystem, such as Chaumian eCash projects like Fedi and Cashu, and statechain swaps facilitated by solutions like Mercury Wallet. By leveraging its robust and scalable infrastructure, Lightning Network is allowing these projects to interoperate and coexist on a shared platform.
In the case of Fedi and Cashu, the Lightning Network is providing a high-speed, low-cost payment channel that allows users to transact Bitcoin instantly while preserving their privacy, a fundamental feature of Chaumian eCash. This allows these projects to deliver on their promise of anonymous, digital cash, all while benefiting from the security and decentralisation of the Bitcoin network.
On the other hand, for statechain solutions like Mercury Wallet, the Lightning Network is providing an efficient means to perform state-chain swaps, and acts as more private, instant, on and offramp. This is particularly useful for users who want to transfer Bitcoin private keys in a trust-minimised way between different users to improve privacy and scalability. In essence, the Lightning Network is creating a highway system across Bitcoin’s Layer two landscape, enhancing both usability and interoperability.