On the 16th, the virtual currency exchange Bitbank released its own development application “Nloop” for the practical use of Lightning Network (LN). The company is considering expanding its LN business in the future, and will consider implementing it for deposits and withdrawals by the end of the year as the first step.
LN is a layer 2 technology to solve Bitcoin’s scalability problem. When a large number of transactions are made with Bitcoin, the capacity of the block becomes insufficient, causing a “scalability problem” that causes remittance delays and soaring fees. Another problem is that if you repeat a simple transaction even if it is a small amount, you will be charged a fee each time. LN is attracting attention as a technology that solves scalability problems and realizes low fees even for small payments by temporarily consolidating them off-chain (outside the blockchain).
However, in order to use LN, it is necessary to lock up (deposit) Bitcoin to the channel where the transaction is conducted. It has been pointed out that LN cannot secure liquidity due to the lack of this lockup fund.
Nloop acts as software for submarine swaps to exchange Bitcoin on LN for another asset. This eliminates liquidity deficiencies by allowing network participants (such as exchanges) to connect to liquidity providers around the world and automate the process of keeping channels available at all times.
Even though LN realizes low fees, it is not good that intermediate nodes are charged fees and that increasing anonymity of transactions by going through off-chain is an obstacle to doing business. It is one of the factors that delays the spread.
According to Takeshi Miyamoto of Bitbank’s system division crypto team, using Nloop can secure security by eliminating fees for intermediate nodes and by being able to grasp transaction data on the exchange side.
The company hopes to use the Lightning Network to improve convenience for arbitrage and attract investors.
Mr. Miyamoto focuses on LN because he thinks that “many of what are called’cryptocurrency exchanges’ will become LSPs in the near future.” An LSP is a service provider that guarantees a connection to the Lightning Network, such as an Internet ISP.
Based on such assumptions, the company will enhance the convenience of arbitrage and apply LN to deposits and withdrawals as “Phase 1”, operate the liquidity provider in-house as Phase 2, and LPaas (Liquidity Provider as a Service) as Phase 3. We are considering providing it externally. Phase 1 will be available later this year. If this is realized, it is expected that Bitcoin will be easier to use for daily payments from exchanges. However, regarding Phases 2 and 3, we would like to strengthen recruitment and work on it.