For many Bitcoin Core contributors, such as Blockstream CTO Greg Maxwell, the Lightning Network is the best option for scaling the Bitcoin network to millions of more users over the coming years. Having said that, this new innovation can also enable new types of payments that were not previously possible in Bitcoin.
In a recent talk at the Bitcoin Milano Meetup, Lightning Labs co-founder Olaoluwa Osuntokun briefly discussed five potential use cases for Bitcoin’s Lightning Network, which is essentially a caching layer for payments built on top of the base Bitcoin blockchain.
“The use cases are pretty cool – they’re pretty profound,” said Osuntokun. “And I think adding Lightning to Bitcoin the system itself kind of starts to fulfill some of the promises that people thought the system fulfilled before they understood the system very well.”
Global Scale Payment Network
The first use case of the Lightning Network Osuntokun brought up during his talk was the most obvious. According to Osuntokun, the Lightning Network can allow Bitcoin to scale much more efficiently as a global payment network.
“The base layer isn’t very good for payments because . . . the unpredictability of the blocks and the transaction fees being unpredictable as well,” said Osuntokun.
In Osuntokun’s view, the Lightning Network allows Bitcoin transactions to act more like traditional credit card payments in that they’ll be instant with very low fees.
Micropayments
Due to the low fees involved with Lightning Network transactions, the layer-two Bitcoin protocol can also enable micropayments. According to Osuntokun, online micropayments have not been possible in the past, at least not in a decentralized setting.
“You have to trust somebody to handle disputes and the cost of dispute [resolution] may prohibit the cost of the actual transaction because it would be uneconomical,” Osuntokun said of past online payment models.
As far as specific use cases for micropayments on the Lightning Network, Osuntokun pointed to pay-per-second music streaming, pay-per-article news websites, and various gaming applications.
“It creates a very fluid conduit for payments over the Internet,” said Osuntokun.
Machine-to-Machine Payments
According to Osuntokun, the Lightning Network is an open, decentralized, and programmable API for online payments. This sort of payment protocol may be useful in machine-to-machine transactions because the system can be entirely automated and devices will not need to interact with any third parties.
Payroll
Another possible application of the Lightning Network mentioned by Osuntokun is payroll.
When transactions are instant and practically free, it’s possible to pay employees and contractors per minute rather than per month. This increased payment velocity would allow workers to get paid immediately for their work rather than waiting for a paycheck.
Mastering Bitcoin author Andreas Antonopoulos has referred to this concept as “streaming money”.
More Decentralized, Less-Trusted Exchanges
The final potential use case mentioned by Osuntokun during his talk had to do with improvements that the Lightning Network can bring to cryptocurrency exchanges.
According to Osuntokun, cryptocurrency exchanges reintroduce the systemic risks that systems like Bitcoin intended to remove in the first place. He added that these exchanges have been hacked and have become targets for regulation.
From Osuntokun’s perspective, the Lightning Network enables decentralized pure-cryptocurrency exchanges.
“With Lightning, the user themselves can actually hold their funds in kind of like a joint account with the exchange, meaning that we can start to restrict the set of capabilities of a hacker to [steal funds from individuals],” said Osuntokun in terms of how the Lightning Network can improve cryptocurrency exchanges. “We can do instant deposits into and out of the exchanges.”
“We’ll get to [these use cases] eventually, but we’re still working on building the protocol itself,” Osuntokun concluded.