Exclusive Look into The First Exchange Built on the Lightning Network

Han Yoon
Han Yoon
Mar 26, 2019 · 8 min read

Instant Trades Now Possible without the Need for Centralized Exchanges

Last week I received a private invite to the beta launch of Sparkswap, a semi-decentralized built on the Lightning Network. The only centralized part of the exchange is the “relayer,” which the Sparkswap team controls to perform certain functions like aggregating the orderbook with bids and asks. For the most part, however, the users (aka “brokers”) are in total control: they host nodes themselves, their own wallets with their private keys, conduct transactions directly with the counterparty, etc.

The Lightning Network

For those that are unfamiliar with the Lightning Network, it may be hard to understand the significance of being able to launch an exchange on the network. The Lightning Network is a “Layer 2” protocol built on top of existing blockchains, most notably Bitcoin. The whitepaper (BOLT — Basis of Lightning Technology) was published in 2015 by Joseph Poon, who is now working on Plasma with Ethereum and OmiseGO, and Thaddeus Dryja, a University of Virginia PhD candidate in cryptography and network security.

Lightning Network Gaining Rapid Traction

Real Diagram of Active Lightning Nodes (Courtesy of 1ml.com)
Sparkswap Technical Diagram
Diagram: How the Exchange Works

Sparkswap: Requirements and Installation

Now the Fun Part: Placing Your First LN Order

At the time there are only four types of orders: limit buy/sell, and market buy/ sell. As the project continues to improve, I’m sure more order types will be integrated. This is only the beginning, and that’s the exciting part.

sparkswap orderbook --market BTC/LTC
(replace ‘buy’ with ‘sell’ to sell BTC)
sparkswap buy 0.001 1.297 --market BTC/LTC
(replace ‘buy’ with ‘sell’ to market sell BTC)
sparkswap buy 0.0001 --market BTC/LTC

Obstacles, Dilemmas, Regulatory Woes, and Future Goals

Pretty fascinating and beautiful work, right? We absolutely think so. But it’s not all glory. When asked about the obstacles that he faces, Griffith goes on to explain a variety of things, including regulatory worries:

Trey Griffith, Project Founder

Closing Thoughts

This is definitely one of the more exciting use of the Lightning Network that we have seen. Fully decentralized exchanges are slow, orders do not always go through as expected, and the volatile nature of cryptocurrencies create uncertainties in the final purchase price. Atomic swaps take too long to trade with “GDAX” like speeds, which is crucial for day traders and market makers. Sparkswap, on the other hand, is revolutionary in that the exchange speeds can rival that of actual centralized exchanges — without having to give up custody of your private keys. There’s no slow withdrawal times to worry about, making arbitrage opportunities very attractive on Sparkswap. Exchange hackings, surprisingly, are still a common occurrence, which is very concerning as many exchanges are more focused on profits than the security of its users’ funds. The UI is very straightforward, elegant and, dare I say, beautiful — which is almost an oxymoron for most CLI-based programs.

Innovators Welcome & Appreciated

I applaud the Sparkswap team for the incredible work that they have achieved so far. We don’t feature projects often, but when we do, it’s with strong conviction. #TeamLunar welcomes innovation and risk-takers, and we wish the Sparkswap team the best of luck. We especially respect projects that open source their code, as it is in my opinion that without the open source community, the internet would be radically different from what it is today, and Bitcoin would not exist. And come on, let’s admit it — what they’re doing is freakin’ cool. We encourage everyone to check the project out and show support; without innovators, the world would be a dull place.

Lunar Insights

Lunar Insights is one of the main three pillars of Lunar…

Lunar Insights

Lunar Insights is one of the main three pillars of Lunar Digital Assets, a leader in the blockchain and cryptocurrency industry.

Han Yoon

Written by

Han Yoon

CEO @ Lunar Digital Assets | Serial Entrepreneur, Blockchain Junkie, Cybersecurity Researcher, and Hobbyist Writer at HackerNoon, CoinDesk, and ICOBench.

Lunar Insights

Lunar Insights is one of the main three pillars of Lunar Digital Assets, a leader in the blockchain and cryptocurrency industry.