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The Lightning Network

To understand the importance of the lightning network, it’s first essential to understand the turbulent past of Bitcoin’s scaling problem.

In the summer of 2017 the Bitcoin blockchain became sluggish and expensive as fees reached boiling point. Not only were transactions costing an enormous amount (upwards of $20 per transaction) but each transaction was taking an hour or more to confirm on the network. The reason for the high cost and delayed transaction times was due to Bitcoin’s blocks being full. Each block contains transactions and each transaction takes up an amount of space (in bytes). The Bitcoin block size is limited to 1 megabyte and when that limit is reached, all further transactions must wait in the “memory pool” until the next block can be mined. Given that each block is mined every 10 minutes and that more transactions were occurring than could be processed, delays on each transaction increased rapidly. An expensive “fee market” then emerged, where users would send transactions with higher and higher fees as a means to have their transaction processed faster (miners are paid transaction fees and are therefore economically incentivized to process transactions with higher fees first).

This is Bitcoin’s scaling problem, and without consensus from the community to increase the block size beyond 1 megabyte, the only hope was through “second layer solutions” – solutions that did not require a change to the Bitcoin protocol itself. The first second layer solution to receive major attention was the Lightning network. Multiple implementations of Lightning exist (c-lightning, eclair, and lnd), however they are all capable of working together to achieve one thing – to scale the Bitcoin blockchain without compromising security or decentralization.

How does the Lightning Network help casino players?

The Lightning network takes payments “off-chain” through what are known as Lightning channels. In a Lightning channel peers able to send and receive effectively an infinite number of transactions at a low cost without making any contact with the main Bitcoin blockchain; the only transactions recorded by the Bitcoin blockchain are the opening and closing (settlement) of the channel. Consider it the same as entering a casino and buying chips from the cashier; the chips can be won and lost numerous times without the cashier’s knowledge, the only two transactions that matter to the casino are the purchasing of the chips and the cashing in at the end. This concept is analogous to the lightning network – open a channel with one Bitcoin transaction and close it with another; what happens in between does not require recording by the Bitcoin ledger and thus, these transactions are free from the limitations of the Bitcoin protocol.

At this stage in development, a player would have to open a channel directly with a Bitcoin casino in order to deposit and withdraw from it. However, transaction routing is being worked on which will allow players to access other channels by “hopping” through peers on the network. Each peer is connected to another through their channel, and a peer with multiple channels open can help route payments from (for example) A to D without requiring A to also have channels open with B and C. This payment routing becomes easier as more channels are opened and the network expands. In its current state, many channels will be “cut off” from the rest of the network, requiring additional/dedicated channels to be setup.

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Lightning Network Casinos

Currently, there are no Bitcoin casinos which have adopted the lightning network for player deposits and withdrawals. However, those looking to access one of the fastest growing Bitcoin casinos with a range of different cryptocurrencies can find FortuneJack below.

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Lightning Vs Bitcoin Casinos

Lightning payments are made using Bitcoin, however the use of these Lightning channels differs from the use of the Bitcoin blockchain itself. Below are some of the pros, cons and similarities between the two.

Lightning Network Pros

  • Instant casino deposits and withdrawals
  • Free/ultra-cheap transaction fees
  • Micro-betting

Lightning Network Cons

  • New technology and lack of adoption
  • Limited range of casinos to play at
  • A channel route to the casino is required

Similarities

  • Deposit, withdraw and bet with Bitcoin
  • Anonymous gambling
  • Highly secure cryptographic transactions

The pros of using the Lightning network at your favorite casino far outweigh the cons. The only major drawback at this point in time is the limited accessibility of using the Lightning network for Bitcoin gambling. As the months go on, and the Lightning network continues its development, it is likely that more and more casinos will begin accepting Bitcoin deposits and withdrawals on Lightning.

Bitcoin Lightning FAQs

Is the lightning network expensive?

The Lightning network is arguably the cheapest form of blockchain payments in existence. Other blockchains do offer fast and cheap transactions, however they often suffer from some form of centralization. Ripple’s XRP cryptocurrency is touted as the fastest blockchain available today; however payments are centralized among a number of nodes, and gambling transactions may become censored in the future. IOTA also claims fee-less transactions, however each transaction requires “proof of work” to be carried out by the sender; costing a somewhat sizeable amount of electricity to complete.

Currently transactions sent on the Lightning network are free, however it is likely that small fees (fractions of a cent) will be implemented at a later stage.

Is the lightning network secure?

As all Lightning network transactions are settled on the Bitcoin blockchain they inherit the same level of security as Bitcoin itself. Arguably, Bitcoin is the most secure monetary system ever invented and therefore any Lightning channels which are settled on the Bitcoin blockchain are highly secure. That said, the transfer of value on the Lightning network itself is largely untested at this stage, and there may be issues which are found further down the line. The Lightning network is currently undergoing heavy testing from the Bitcoin community, but it is safe to say that once it reaches production it will be secure for Bitcoin casino deposits and withdrawals.

How long does a lightning deposit take?

The Lightning network is instant; hence the name. The only point at which the Lightning network may become challenging to use is if the player is required to setup a channel with each Bitcoin casino that they wish to play at. This is due to the “routing problem” described further above. As the Lightning network expands, this problem will diminish as deposits and withdrawals can be made by “hopping” through other existing channels as they route themselves towards the target location.

Does lightning work on other blockchains?

The Lightning network has been developed for Bitcoin as a means to solve its immediate scaling problem. It is likely that the technology developed by Lightning will also be implemented on other blockchains however there are very few other blockchains which suffer from the same high fees and slow transactions that Bitcoin does (this is thanks to Bitcoin’s overwhelming popularity). Ethereum is a close contender, with fees reaching a few dollars and transaction times slowing drastically during periods of prolonged use. In the case of Ethereum, other scaling solutions are being adopted as well as “Raiden”, which is built on similar technology to Bitcoin’s Lightning network and uses what are known as “state channels”. The smart contract based casino FunFair is using “Fate channels” to help scale the number of players that can bet on its platform.

Further reading about FunFair can be found here.

Last updated by Nick Hawke on June 12, 2020

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About the editor

Nick is the CEO and founder of The Bitcoin Strip and has reviewed and written about Bitcoin casinos, sportsbooks and poker rooms for 9 years. He first entered the Bitcoin gambling market in 2011 following a widespread closure of poker rooms in the US.
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