On the Shoulder of Giants: Lightning Network Protocol 1.0

“If I have seen further it is by standing on ye shoulders of Giants.”— Isaac Newton, 1675

On December 6, 2017, Lightning Developers, a medium.com publisher representing the three main parties (ACINQ, Blockstream, and Lightning Labs) that together are building the Lightning Network protocol, announced that Lightning Protocol 1.0 is operational. All tests were passed, and the first multi-client Lightning transactions was successfully completed on the Bitcoin mainchain.

On January 16, 2016, Joseph Poon and Thaddeus Dryja published their whitepaper, The Bitcoin Lightning Network: Scalable Off-Chain Instant Payments, which proposed the Lightning Network (LN) as a Bitcoin layer-two protocol that could potentially solve Bitcoin’s scaling problems.

This article will not go into the specifics of the LN protocol here, but the main idea is that LN transactions are more or less normal bitcoin transactions that are simply deferred off-chain (not immediately added to the blockchain). LN nodes create channels between one another, via an initial shared (multisignature) transaction on the Bitcoin mainchain, but then may continue transacting between each other indefinitely, inside this channel. Channels need only be closed and finalized on the mainchain if both nodes agree to close the channel or if there arises a transaction dispute within the channel.

However, in order to secure the proposed LN off-chain transactions on the blockchain, the problem of the malleability of transactions on the blockchain had to be patched. On August 24, 2017, in anticipation of the development of the LN, the Segregated Witness patch was activated on the Bitcoin network, which fixed the malleability problem.

For quite some time now, testing of the first LN clients (eclair, c-lightning, and lnd) has been ongoing on the Bitcoin testnet, so that all the bugs could be worked out before the clients were fed real bitcoin. Of course, testing of the clients will continue, as they are all still in the alpha stages of development. Yet, this announcement of the first successful cross-client LN transactions being done in real satoshis is a huge milestone in the progress of the LN.

Large-scale implementation of the LN promises to revolutionize the already revolutionary cryptocurrency space. Likely the most promising aspect of the LN is that it will allow nearly infinite off-chain micro-transactions. Micro-transactions will open entirely new monetization strategies that have enormous potential to entirely replace the currently pervasive, ugly monetization models such as advertising and selling of user’s personal information.

The recent tests completed on the mainchain demonstrate proof of concept for two such monetization models: small-scale transactions (Starblocks) and micro-transactions (Y’alls). Imagine a world rid of distastefully pervasive advertising and unethical sale of private user information. Welcome to the new Lightning Network economy!

Disclosure: I have been privileged to work directly with the amazing team of developers creating the LN protocol specifications. I’m humbled by the opportunity to stand on the shoulders of giants. Shout out to Rusty Russell 🙂