Lightning Network May Get a New Layer to Verify Transactions with Eltoo

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The Bitcoin Lightning Network may have been used to process transactions for a short period of time, but enough data has already been collected to set its architects on a path to upgrade the network with further improvements.

In order to improve Bitcoin’s transaction processing volume, Lightning Network requires users to store a large amount of data, which can make it a challenge to install and run. In order to simplify the process, Lightning Labs co-founder Laolu Osuntokun has partnered with Christian Decker and Rusty Russell from Blockstream, to publish a proposal for the new architecture. The newly proposed method for handling off-chain transactions is called Eltoo, so-named as a play on “L2” or “Layer 2.”

According to the proposal, Bitcoin is limited in its ability to scale. Due to the way distributed ledger technology (DLT) works, every node must store on-chain payments, creating bottlenecks. To improve performance, “Layer 2” is added to enable off-chain protocols by limiting the participants to a smaller group rather than broadcasting all transactions to the network. With this method, Layer 2 has an issue with guaranteeing that an old state isn’t committed if it has been replaced. Eltoo replaces mechanisms in Layer 2 protocols to by introducing the idea of state numbers stored on-chain.

In addition to improving throughput by reducing the amount of data that users must store, Eltoo is also designed to improve security and data integrity. With the current Lightning Network platform, there is the risk that a user may accidentally broadcast old data, known as “toxic information.” Should this happen, the result would be a loss of assets for the user. Eltoo solves this problem by storing only the most recent off-chain transaction data. In so doing, it resolves a known “information asymmetry” issue where device glitches can cause data loss.

It should be noted that while this technology improves the performance of Bitcoin, it is another layer on top of the oldest blockchain system that powers a cryptocurrency. Third generation cryptocurrencies have been developed that are faster and less expensive to use, without extra layers acting as bandaids to legacy issues.

Steem is a widely used, 3rd generation cryptocurrency used to power transactions on Steemit, and a host of other content networks. Earlier this month, Steem surpassed one million digital wallets for users across a number of content websites and DApps. Cardano is another 3rd generation cryptocurrency that’s gaining popularity.

Functionally, third generation cryptocurrencies are better than Bitcoin on many levels. However, being first to market has tremendous value, and Bitcoin may always be the reserve digital currency, against which all others are traded and compared. Because of this, Lightning Network, and possibly Eltoo, were not simply wanted improvements. Bitcoin must keep pace with other cryptocurrencies in its execution, in order to maintain its role as the dominant coin. Should Eltoo be adopted, the next step will be to write the code, test it, and deploy it. The reality however, is that Lightning Network should probably be tested further, before making such a major protocol change.

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