Onboarding the Masses: Capacity-as-a-Service
The bitter opponents of off-chain scaling denigrating the evolution of the Lightning Network (LN) have done little to hamper the growth of Bitcoin’s second layer. Since January 2018, LN node count has grown by roughly 60x, and LN capacity by 600x.
Nodes, Channels and Capacity
There’s many reasons why you may choose to establish a Lightning channel with a peer – high transactions per second (TPS) throughput back and forth, negligible fees on microtransactions, or a burning desire to buy Blockstream stickers.
If Alice wants to do so with her local transport company, she would fund a a 2-of-2 multisig address (with the company) with, say, 0.5 BTC. From there, any time she purchases a ticket on her morning commute, both nodes would update a balance sheet to reflect the movement of funds – prior to any transactions taking place, Alice would have 0.5 BTC on her end, and the transport company would have 0 BTC. If she bought a ticket at 0.01 BTC, the revised state would then be 0.049 BTC on Alice’s end, and 0.01 BTC on the company’s end.
All of this takes place off-chain, so no transaction fees are charged on exchanges occurring. When one party wants to ‘cash out’ to the main chain, they simply close the channel and publish its current state.
It would obviously be impractical to open channels with your local barbers, grocery stores or indeed anyone you planned on interacting with (nor would it be economical for a one-off transaction). Luckily, the Lightning Network is more sophisticated than that, and allows transfers to be made by routing through other nodes: taking our example above, if Alice wanted to pay her friend Bob, she could do so through the transport company, provided Bob had a channel open with them.
Well, in theory. The capacity of the channel can be a limiting factor. If Alice opens the aforementioned 0.5 BTC channel with the transport company, neither Bob nor the company would be able to pay her through it – there would be no funds on their side of the channel to push. In order to receive x amount, Alice’s counterparty must have at least x on their end for the transaction to work.
There are ways around the issue – Alice just needs to push funds to the other side of the channel to free up space, i.e. by making purchases with Lightning. It’s not the most imaginative of approaches, but it does the job.
Capacity-as-a-Service
An interesting byproduct (or, indeed, building block) of the LN is the sprawling infrastructure that continues to crop up around it. We’re witnessing a rapid growth in services that aim to facilitate the experience for users.
One that I’m particularly impressed by is Bitrefill’s recently unveiled Thor. For a fee, the company will open an empty channel with the customer (ranging in capacity from 300,000 sats to 16,000,000 sats). John Carvalho, the company’s CCO, told me in a recent exchange.
“I think businesses have an opportunity to fill the gaps on aspects of the protocol that are still under development or are more efficient to provide centrally. These services also play a role in educating and onboarding the existing community to Layer 2 transacting. Thor makes it easier for an enthusiast to bring a friend onto the Lightning network. Casa nodes make it easier for someone to start a hub, etc.”
“I’m hoping things will accelerate all on fronts. LN gives devs something fresh and exciting to work on, so maybe the kind of people that get attracted to Ethereum will get drawn to making new products on Bitcoin instead. I’d like to see new entrants to crypto get onboarded directly onto LN from the start and shift the paradigm to using the base layer for settlement, hodling, or channel-opening mainly. I want to see how inventive devs and businesses can be with building new tech on Layer 2 that leverages non-custodianship.”
The Bitrefill node, at time of writing, boasts a capacity of almost 17 BTC across 313 channels. By opening a channel with it, users are able to easily receive large payments and tap into a heavily interconnected network of nodes. Carvalho wasn’t overly worried about the fear, uncertainty and doubt (FUD) surrounding the fabled risk of centralisation by having large Lightning ‘hubs’:
“Since LN is still non-custodial, most of the centralization complaints are just FUD or ignorance. However, people still need to understand the difference between custodial wallets and holding their own keys & backups, as usual. It is a shitcoiner’s job to complain about aspects of Bitcoin, it’s the only way for them to create a perception of relevance.”
Thor may be the most prominent example, but it’s far from the only one: LightningTo.Me also has a very simple and free solution for automatically opening 0.002BTC channels to the user. Like Bitrefill’s node, it has an impressive capacity. Though I can’t attest to reliability as I’ve not tried them myself, services like zigzag.io and ln.zone also offer novel ways of enabling users to receive Lightning payments.
Where the protocol may initially fail to deliver a solution, the market responds. Bitcoin is still nascent, and the LN even more so, but the deluge of services cropping up to address the capacity issue are a sign of the industry soon to come.
Thanks to John Carvalho for his input.
Cover art by the author.
