The lightning network has successfully processed a cross-blockchain atomic swap, marking another milestone for bitcoin scalability, privacy, and infrastructure.
Developers at Lightning Labs successfully used a lightning network channel to trade testnet bitcoin for testnet litecoin. The transaction was completed off-chain, meaning that they were able to trade the coins without recording a transaction on either the bitcoin or litecoin blockchain and without using a trusted third party such as a cryptocurrency exchange.
Here’s why that’s significant.
For years, the bitcoin community has wrestled with the question of how to scale the network to accommodate more users without sacrificing security or decentralization. Some developers — particularly those who believe bitcoin’s chief utility lies in its use as a currency — argue that the network should scale through blocksize increases. Others support a broader approach that relies on so-called second-layer solutions — such as the lightning network — that build on top of the bitcoin network and protocol but operate off-chain, so to speak.
This debate reached a head in 2017 when bitcoin’s meteoric price rise had a corresponding effect on transaction fees. Second-layer solutions remained in development with no set release date, and the currency-first crowd largely cast their lot with bitcoin cash, a cryptocurrency that was created through a hard fork of the bitcoin blockchain and relies on on-chain scaling to keep transaction fees low.
However, lightning advocates continue to believe that off-chain transactions — processed through second-layer payment channels at virtually no cost — are the future of everyday bitcoin payments and transfers. In addition to reducing transaction fees, they will conceal payments from the blockchain — ensuring user privacy — without sacrificing the trustlessness of bitcoin’s blockchain. And with full-featured support for atomic swaps, users will be able to trade coins across blockchains, eliminating the need for centralized order-book exchanges.
With the successful sandbox demonstration that off-chain atomic swaps are possible, that latter goal is one step closer to becoming a reality once the lightning network is deployed on top of the main bitcoin blockchain.
For a more detailed explanation of how lightning-based atomic swaps function, read this blog post published by Lightning Labs.