Bitcoin had two major problems plaguing it in 2017; transaction speed and transaction cost. The Lightning Network – or Lightning for short – has been getting significant publicity as many of Bitcoin users are excited for faster transactions at lower costs. Users and developers alike are looking forward faster transactions and lower transaction costs, but what is the tradeoff? Is there a security risk when choosing to go around the actual Bitcoin blockchain for faster transactions?
What is the Lightning Network?
The Lightning Network intends to dramatically increase Bitcoin’s (BTC) transaction speed while reducing transfer costs. Originally the Lightning Network was intended for BTC. It is a very difficult and tedious process updating Bitcoin’s underlying software which is why the Lightning Network chose to add an extra layer of technology. This layer of technology exists on top of the BTC blockchain where transactions can occur very inexpensively and very quickly, with hypothetically, the same degree of security. The original Lightning concept was proposed in 2015 and has progressed over the last few years.
Joseph Poon and Thaddeus Dryja wrote the original Lightning whitepaper, and in January 2017 a public alpha was released. Later on, in December 2017, three different organizations working on creating the Lightning Network performed interoperable test transactions. Shortly thereafter Payment Provider Bitrefill tweeted they were the first to send a transaction on the Bitcoin Lightning Network. TorGuard soon after became the first VPN provider to accept payments via the Lightning Network. Recently more and more cryptocurrency exchanges have allowed funds to be sent over the Lightning Network.
Bitcoin and blockchain technology revolutionized the business landscape and how ledgers are maintained. The Lightning Network is revolutionizing every cryptocurrency it can attach to by speeding up transaction times and greatly reducing fees.
The Watchtower Security Feature
One of the quieter development teams of the Lightning Network is Lightning Labs, which is led by Olaoluwa Osuntokun (a.k.a. roasbeef). During a recent interview, Osuntokun mentioned how Lightning Labs had passed the initial phase of the watchtower implementation. This initial phase includes the watchtower function possibly being outsourced to certain entities to monitor a channel for fraud. To understand how this outsourcing of the watchtower would work it becomes essential to understand how the watchtower security feature works.
Lightning transactions are literally lightning quick as the name implies. However, if there is a dispute, it becomes a burdensome process to unravel. If a scam artists attempt to broadcast a transaction which steals money from other users, the scammed user has time to see and stop the transaction. However, if they are not actively monitoring their account, the transaction may go unnoticed until it is too late. As the Lightning Network grows the need to have an entity, or group of entities monitoring the entire network for fraudulent activity grows with it.
The final watchtower goal is to be able to have multiple entities scanning transactions looking for fraud. Instead of one watchtower overseeing all the transactions; there can be multiple watchtowers monitoring to find and stop fraud and scams more efficiently. This ensures if one or two of the entities have been corrupted, the others will still manage to pick up the fraud taking place on the Lightning Network. First, it is prudent to implement features of the watchtower.
Implementing Watch Tower Features
The first major hurdle plaguing watchtowers is scalability. It is simple for a watchtower to monitor one or two channels but what happens when it has to monitor hundreds or thousands simultaneously?
The database could continue to grow of monitored channels and confirmed transactions to a point where its storage requirements would be larger than the entire Bitcoin blockchain itself. The would create substantial problems with both syncing and storage.
Osuntokun has proposed a few new methods that allow watchtowers to store less data making them more efficient without compromising security. This will be the first step in scaling watchtowers to a functioning reality on the Lightning Network.
Currently, the two lead teams behind Lightning are split between whether having one altruistic node would be better than having multiple watchtowers. The argument for having one altruistic node is it is unnecessary to have multiple watch towers as such few transactions are corrupt or fraudulent. The argument from the opponents is that one altruistic node can be corrupted and as the Lightning Network grows it may not be able to handle the transaction quantities taking place. If one altruistic node is a good idea, it is likely two or three to make sure neither are corrupted or hacked is probably a good idea as well.
Conclusion: Lightning Lights up the Sky
It seems the Lightning Network has solved Bitcoin’s scaling problems while also designing the new implementation of a watchtower feature. This should improve the security the Lightning Network, on top of the Bitcoin blockchain. Once successful the implementation of the Lightning Network and watchtower security features will likely be applied to many other cryptocurrencies. The Lightning Network combined with bitcoin’s recent updates place the cryptocurrency in a position for significant success in 2018.
The largest problems plaguing BTC in 2017 were the transaction speeds and transaction costs. Recent updates to BTC’s code have dramatically reduced these for the time being. The Lightning Network is a long-term solution for bitcoin’s scalability problems and will likely benefit many other cryptocurrencies as well. The watchtower security feature is an addition that will soon be implemented in the Lightning Network reducing the risk of fraud while benefiting BTC users in the short and long term.
To read the King’s prior articles, to find out which ICOs he currently recommends, or to get in contact directly with the King, you can on Twitter (@JbtheCryptoKing) or Reddit (ICO updates and Daily Reports).