Coinbase, the largest U.S. cryptocurrency exchange by trading volume, is launching support for the Lightning Network starting today. This allows users to send, receive, and pay Bitcoin faster and cheaper directly from their accounts.
Previously, Bitcoin transfers from Coinbase were processed on-chain. This meant that transactions could take anywhere from 10 minutes to 2 hours, resulting in high fees during periods of network congestion.
Launched in 2017, Lightning Network is a layer 2 protocol built on top of the Lightning Network. bitcoin BTC
-2.63%
A blockchain designed to solve scalability problems through two-way payment channels that enable near-instantaneous, low-fee transactions off-chain without immediate settlement at the base layer.
“Increasing Bitcoin adoption increases economic freedom in the world. “We are excited that our Lightning integration will make Bitcoin more useful and accessible globally.” Viktor Bunin, protocol expert and head of Lightning integration at Coinbase, told The Block. “Providing faster and cheaper BTC payments through our partnership with Lightspark is another huge milestone for the ecosystem.”
Lightning Network’s fees are broken down into a flat base fee as low as 1 satoshi (the smallest unit of Bitcoin and equivalent to less than $0.01) and a liquidity provider fee, or fee rate expressed as a percentage charged on the payment amount. . Node operators on the network can set fees at various levels to compensate for liquidity locking.
Bunin told The Block that there is a 0.1% processing fee only for transfers involving Lightning transactions on Coinbase, which should be processed within seconds. At launch, Coinbase users will be limited to withdrawing up to $2,000, which means the maximum withdrawal fee will be $2, he said. This is higher than the average Ethereum Layer 2 transaction but lower than a transaction on the Bitcoin blockchain.
“We chose conservative limits because while Lightning can support arbitrarily large BTC transfers, the average payment success rate drops as payment size increases,” Bunin said. “Setting lower limits at launch will improve user experience and can be adjusted as liquidity on the network increases based on user feedback.”
In a statement shared with The Block, Coinbase said that with the Lightning Network integration, the cost for users to send Bitcoin globally is now 20 times lower than the average 2% charged for credit card transactions and less than the $30 paid for a wire transfer. He claimed that it was only a small part of it. .
The integration will allow users in supported regions to choose between Lightning or Bitcoin base layers for withdrawals and payments, though Coinbase did not specify which regions will be supported at launch. “Lightning Network integration is not yet available in all regions. We are launching assistance on a case-by-case basis,” Bunin said.
Partnering with Lightspark
Coinbase has partnered with Lightning Network infrastructure company Lightspark for the integration. Lightspark is led by CEO and co-founder David Marcus. David Marcus is known for his previous leadership roles at PayPal and Meta, including the Diem stablecoin project.
The selection of Lightspark as Coinbase’s integration partner was announced on April 3, with Marcus calling it another “significant milestone” for Lightning at the time.
“We chose to use a non-custodial integration partner because Lightning’s design includes optimization components related to channel liquidity management and route success rates,” Bunin told The Block. “It made sense for Coinbase to leverage the expertise of a partner focused on solving these issues while we could focus on protecting user assets and improving the user experience while using Lightning.”
Commenting on today’s launch, Marcus told The Block: “Working with Coinbase to bring Lightning payments to our customers is a pivotal milestone in our shared goal of providing real solutions for internet payments.” “Working closely with the Coinbase team has been a special experience, and we’re thrilled that hundreds of millions of people in hundreds of countries can now send fast and inexpensive Bitcoin transactions.”
There are no plans to integrate Lightning with Coinbase Wallet.
Bunin said there are currently no plans at this stage to integrate Lightning into Coinbase Wallet (a web3 non-custodial wallet) or any other Coinbase product or service. However, the team added that it will closely monitor the growth of the Lightning Network and adoption by Coinbase customers to guide potential expansion into products such as Coinbase Wallet or cryptocurrency payment service Coinbase Commerce.
“We don’t know how many users will use Lightning to send BTC, but we’re very excited about the traction we’ve seen on Layer 2 in other ecosystems,” Bunin added. On Ethereum, approximately 35% of ETH transfers were made via layer 2 protocols, such as the Coinbase-based Base Network. “The usage, adoption and traction of Layer 2 in Bitcoin and Ethereum are obviously very different, but generally we expect Layer 2 usage to increase over time as users seek cheaper and faster transactions,” he said. ”
how did we get here
Coinbase CEO Brian Armstrong first suggested that Coinbase would support the Lightning Network at some point in the future in April 2023. Coinbase later confirmed that it would integrate Bitcoin Layer 2 in September 2023, with Armstrong stating that Bitcoin is “the most important asset in cryptocurrency.” The exchange said it was “excited to do our part to enable faster and cheaper Bitcoin transactions.”
Armstrong’s comments follow a consultation process that began a month ago to solicit feedback on how to best implement Lightning. The process began after Armstrong responded to Block CEO Jack Dorsey’s
“We’re looking into the best way to add Lightning,” Armstrong said at the time. “It’s not trivial, but I think it’s worth doing. I fully support paying with Bitcoin.” “I don’t know why you think we’re ignoring Bitcoin. We’ve probably brought more people to Bitcoin than any other company in the world. Let’s build it together.”
Coinbase joins Bitfinex, OKX, Kraken, and others in providing Lightning support.
Coinbase’s Lightning Network integration comes after several major cryptocurrency exchange competitors. Bitfinex was the first major cryptocurrency exchange to offer Lightning Network support in 2019. OKX added Lightning support in 2021, Kraken added it in 2022, and Binance completed the integration in July 2023.
When asked why it took Coinbase longer to integrate the Lightning Network than many of its competitors, Bunin said it was about assessing the growth and adoption of Layer 2 before implementing support.
“Coinbase’s mission is to advance economic freedom in the world, and supporting Bitcoin is a core part of that story. “We evaluated Lightning support for several years before deciding to add support last year,” Bunin told The Block. “The key drivers behind our decision were Lightning’s continued growth and adoption, the maturity of the underlying technology, and our goal of reducing on-chain payments to 1 second and costs to 1 cent.”
In addition to the Lightning support integration, Coinbase has invested in several projects in the Bitcoin ecosystem through its venture arm, including self-managed storage solution Casa, layer 2 rollup BOB, and decentralized exchange portal.
Lightning Network Adoption
Lightning Network adoption has grown significantly in recent years, with total capacity now reaching nearly 5000 bitcoins ($311 million), according to The Block’s data dashboard.
However, due to the surge in Bitcoin price, Bitcoin reference capacity has decreased by 12.9% compared to the peak of 5,640 Bitcoin in July 2023. Lightning Network capacity is down 9.6% in U.S. dollars from its March 13 peak of $344.2 million as Bitcoin approaches its all-time high of $73,836.
Disclaimer: The Block is an independent media outlet delivering news, research and data. As of November 2023, Foresight Ventures is a majority investor in The Block. Foresight Ventures invests in other companies in the cryptocurrency space. Cryptocurrency exchange Bitget is an anchor LP of Foresight Ventures. The Block continues to operate independently to provide objective, impactful and timely information about the cryptocurrency industry. Below are our current financial disclosures.
© 2023 The Block. All rights reserved. This article is provided for informational purposes only. It is not provided or intended to be used as legal, tax, investment, financial or other advice.