Lightning Labs launches a new product today. After Lightning Terminal (LiT) and Faraday, among others, the company is now launching new software to make it easier to use the Bitcoin Lightning Network. It is called Lightning Pool and it should solve the liquidity problem.
In short: Lightning is a network consisting of thousands of nodes with payment channels in between. You can compare it to a bead necklace where the beads represent a certain amount of Bitcoin.
You don’t necessarily have to run a node if you want to make a fast and cheap Bitcoin payment. The network and implementations are still under development.
Payment channels on Lightning
Lightning Labs is known for their lnd implementation, which is by far the largest and most widely used Lightning software. The new product they first called (internally) Lightning Liquidity Market. And that already makes the principle a bit clearer.
Running a node is not easy at the moment, you need a relatively large amount of technical knowledge.
For example, you need to take the balance of your payment channels into account so that you can receive and/or send BTC. This is called channel management, inbound and outbound liquidity.
Lightning Labs has come up with a solution for this liquidity: Lightning Pool. You could see it as a market that sends a signal when someone asks for liquidity. If you have on-chain Bitcoin left over, then you can rent or lease it, as it were.
Lightning Labs describes their idea as follows: it is a non-custodial, batched, uniform, clearing price acution for channel liquidity bonds. Let us take a brief look at these terms:
- non-custodial – you are in charge of the money.
- batched – a whole host of payment channels can be opened simultaneously in one on-chain transaction.
- uniform – the payment channels are tradable in cubes of 100,000 satoshi.
- clearing price acution – it brings supply and demand together
- channel liquidity bonds – these are the bits of BTC you can buy or buy.
Imagine: you have Bitcoin in your wallet and you want to make some money with it, also called yield farming. These sats can now be deposited into a payment channel by first creating a pool account.
Technically, this is a transaction on the blockchain. For example, if you want to bet 1 BTC, you will receive 1,000 of those blocks. You can then offer these on the marketplace.
Another party looking for liquidity can now make use of this. If you have a shop and always receive payments, you will soon run out of inbound liquidity. In order to solve this, you can go to the market as a retailer in search of liquidity and then purchase it (with a number of parameters such as percentage and time).
In the meantime, the blockchain continues to run and a channel is opened between the buyer and seller of this liquidity. The problem of a shortage of incoming liquidity is now solved. A bigger advantage is that you now open channels to people who really need it. A large part of the existing channels are far from optimal (in use).
This new development brings some other benefits, for example for Lightning wallet developers. In the press release Lightning Labs writes how this offers benefits to wallet providers such as Zap and OpenNode.
StartingWithBitcoin had the honor to test the Lightning Pool. You can listen to his story and explanation on startmetbitcoin.com. Marnix also goes a little deeper into the technology with multisig wallets and the great advantage of ‘useful’ channels.
This is because it gives a signal to the market that cards will most likely route and forward a lot of payments. You can use your Bitcoin in an extra useful way!