One of Bitcoin’s most promising new technologies is coming to one of its oldest exchanges.
The Kraken exchange announced today it will add support for the Lightning Network in 2021, which adds it to a small (but growing) list of exchanges that support the scaling technology thus far. Kraken is hiring a team to manage the feature, which it anticipates will be open for client use sometime in the first half of 2021
“The Lightning Network has matured to a level where it can be used by Kraken. It really comes back to what our users are asking for. They want instant and efficient payment – the ability to deposit and withdraw bitcoin without having to wait for confirmations and without high withdraw fee withdrawals,” Pierre Rochard told CoinDesk, saying Kraken anticipates that it will behoove traders looking for arbitrage opportunities between exchanges.
Regarding what aspects of Lightning have "matured" to make Kraken comfortable with supporting the technology, Rochard said two Lightning tech advancements in 2020, wumbo channels and multi-path payments (MPPs), paved the way for the integration. Wumbo channels allow users to send larger transactions on the Lighting Network that are larger than a few hundred dollars, while MPPs allow users to break up large payments into smaller amounts to make them easier to send.
Rochard told CoinDesk the rollout will be an “API-first launch” with only withdrawals initially enabled. This launch will only be “the first of many iterative developments with the Lightning Network” for Kraken though, Rochard continued, adding that the exchange may even allow users to set up payment channels (Lightning’s transaction avenues) directly with the exchange.
What is the Bitcoin Lightning Network?
Bitcoin’s Lightning Network is a technical innovation that allows its users to send bitcoin faster and more cheaply than if they were using Bitcoin’s primary network. These transactions use bitcoin but take place on a “secondary network” with different rules for accounting payments than Bitcoin’s blockchain (these transactions are eventually settled and recorded on Bitcoin’s blockchain when a user is done using the network).
Read more: What is Bitcoin’s Lightning Network?
For an exchange like Kraken, the Lightning Network would lower transaction fees for users when depositing and withdrawing from the trading hub. Since one of the appeals of Lightning is that you can send bitcoin for as little as a cent, this could mean the difference between paying a few dollars or a few pennies to withdraw bitcoin off Kraken at times of high transaction congestion.
Exchanges integrating Lightning
Bitcoin’s more vocal and passionate community members have griped that Kraken (among other popular exchanges) has neglected to add support for Bitcoin’s cutting edge technology while being quick to add new DeFi coins.
But now with Lightning on Kraken’s list of priorities, it will be the third crypto exchange to integrate the network, joining early adopter exchanges like Bitcoin-only River Financial and veteran crypto venue Bitfinex.
Scaling technologies like the Lightning Network and sidechains like Liquid and RSK all offer lower fees and faster transactions than Bitcoin’s on-chain network. When asked why Kraken opted for the Lightning Network instead of other scaling solutions like sidechains, Rochard chalked the decision up to network effects.
“Let’s look at it from the perspective of the ecosystem and how many participants there are. The Lightning community has done a great job of growing and building several different implementations. There are multiple different wallet providers, application developers and there’s so much of education and business development.
“We want the whole industry to adopt this technology, and we want that because we believe it will help everyone. Part of the hope with this announcement is that it gives others the opportunity to join us.”
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