Brief Overview of Lightning Network Enterprise Ecosystem
March 13, 2019
The Lightning Network, first described by Joseph Poon and Thaddeus Dryja in their Lightning white paper published in 2016, has seen significant growth over the past year in both the number of nodes and channels created. Several companies and individuals have taken initiatives to improve upon this technology to push its growth forward and hopefully bring its application to a much wider scale. This report will provide an overview of some of the current players in the Bitcoin ecosystem developing on the Lightning Network protocol.
Overview of Blockstream
Adam Back, Alex Fowler (no longer at Blockstream), Erik Svenson, Gregory Maxwell (no longer at Blockstream), Jonathan Wilkins, Jorge Timón (no longer at Blockstream) , Mark Friedenbach (no longer at Blockstream), Matt Corallo (no longer at Blockstream) and Pieter Wuille founded Blockstream in 2014.
Seed round, Nov. 17, 2014 - $21M
Lead investors: Reid Hoffman,Khosla Ventures ,Real Ventures
Total investors - 15
Funding round, Nov. 21, 2017 - $25M
Investor: DG Lab Fun
Series A, closed Feb. 1, 2016 - $55M
Lead investors - Horizons Ventures, Digital Garage, AXA Venture Partners
Total investors - 14
C-lightning is a full lightning network implementation mostly written in C. It is an open-source project maintained by Blockstream. Rusty Russell and Christian Decker are the main developers on this project but there are a lot of other contributors. It is only available on Linux for the moment. We have written a step-by-step tutorial to use it, read it here.
An open-source software that requires almost no configuration to accept lightning payments on your website.
The Elements project is an open-source platform for building sidechains or blockchains based on the bitcoin protocol that has extra components such as Confidential Transactions, Assets, Federated Two-way Peg. Research projects from Blockstream such as Simplicity and Musig will get added on Elements eventually.
Esplora is the open-source code for Blockstream's explorer for Bitcoin mainnet, testnet and for the Liquid network, that indexes blockchain data from Bitcoin Core and Liquid full node software. It uses a modified Electrs, a Rust implementation of Electrum Server written by Roman Zeyde, as a back-end.
It has always been an issue to sync bitcoin nodes between themselves or sync node on other distributed systems. Minisketch is a software library that aims to reduce bandwidth requirements and to better sync.
Proof-of-Reserves is an open-source software written in Rust that allows exchanges to prove their reserves without exposing themselves to privacy and security risks. It supports Bitcoin Core and Trezor at the moment.
BIP reference: https://github.com/bitcoin/bips/pull/756
Liquid is a federated sidechain that works as an inter-exchange settlement network for large amounts of bitcoin since it has one-minute blocks. L-BTC is the main asset on the Liquid Network and it is fully backed in bitcoin. Liquid is built on the Elements platform and it has components such as Issued Assets and Confidential Transactions on it. Users can try out Liquid through a open-source full-node software, but blocks are only mined by Federation Members and users can only outpeg through an exchange member.
Cryptocurrency Data feed
It is a feed that delivers real-time and historical data of 60 cryptocurrencies from tens of sources, a product from a partnership between Blockstream and Intercontinental Exchange (ICE).
It broadcasts the bitcoin blockchain through almost all over the world for free and without downtime. It also allows users to broadcast messages through the Satellite and paying for it with lightning without identifying themselves.
Bitcoin Block Explorer
Open-source desktop and mobile HD BTC wallet that focuses on security through a multi-signature scheme and timelocks, where GreenAddress controls one of the keys for security purposes but if they ever close, it will be in your possession only because of the timelock. Will eventually add Liquid support. It was originally founded in 2013 as a separate company but was acquired on July 27, 2016.
US20160330034A1 - Transferring ledger assets between blockchains via pegged sidechains
US20160358165A1, WO2016200885A1 - Cryptographically concealing amounts transacted on a ledger while preserving a network's ability to verify the transaction
Simplicity is a blockchain low-level programming language to be used for smart-contracts, that aims to be an alternative to Bitcoin script. It's code has recently been released for the first time and it will eventually be added on the Elements Platform.
Simplification of the model used in the Lightning Network to invalidate old states of off-chain updates and only report the most recent one to the base layer. Previous model consisted on preserving all intermediaries states to ensure rightful settlement on the base layer. Simply explained, Eltoo will only link the latest state update to the original state creation.
Musig is a Schnorr Multi-Signatures scheme that could eventually be implemented on Bitcoin that allows multi-signature transactions that can't be differentiated from single user signatures. The code was recently merged on the secp256k1-zkp library maintained by Blockstream, which is a fork of secp256k1 used by Bitcoin Core.
The culmination of several efforts on proofs of confidential transactions which resulted in a faster to prove, stronger and smaller in size zero-knowledge proof presented under the name Bulletproofs.
They develop solutions for Bitcoin scalability at the user and enterprise levels. They then collect the fees associated with using their products (ex. Transactions fees in using Liquid, transmission by satellite) or by paying a subscription fee (ex. Using the Cryptocurrency Data Feed, being a liquid member). Eventually, services and products will eventually be offered built on top of liquid and lightning. They will probably sell the hardware necessary for the Federation Members of the Liquid Network or they will eventually start selling hardware. Their patent strategy consists of making their technologies fully available, royalty free.
Overview of Lightning Labs
Elizabeth Stark, Olaoluwa Osuntoku (Roasbeef) founded Lightning Labs in 2016.
Seed round, March 15, 2018 - $2.5185M
Investors - Vlad Tenev, Tikhon Bernstam, The Hive, Kevin Hartz, Jacqueline Reses, Jack Dorsey, Digital Currency Group, David Sacks, Charlie Lee, Bill Lee
Convertible note, March 15, 2018 - unknown value
Investor - Craft Ventures
Lightning Network Daemon (lnd)
LND is a complete implementation of the protocol of the Lightning Network. It is an open-source project that anyone can contribute if you follow the guidelines and it is maintained and mostly done by Lightning Labs Inc. LND is a command line software, which means there is no GUI (Graphical User Interface) integrated in it, it is meant to work as a back-end server (node) for other applications that could bring the GUI. It is also a bitcoin mainnet wallet and a lightning network wallet. We have written a step-by-step tutorial on how to use it, read it here.
Bitcoin light client written in Go that preserves privacy in a better way than SPV or Electrum-protocol based wallets by using compact block filters. There is a big debate if support for Neutrino should be merged into Bitcoin Core.
User-friendly open-source wallet for Bitcoin and Lightning that uses Neutrino as a bitcoin light-client. It is currently only available on testnet since Neutrino hasn't rolled out on mainnet yet. The app is available on desktop and will eventually be available on mobile too.
For now, no clear sources of revenue streams. They are one of the leading teams in the Lightning Network ecosystem, so are strategically placed to offer products or services using this second layer solution, and already have knowledge of the market and its trust. Likely to implement a similar strategy to Blockstream.
Overview of ACINQ
Pierre-Marie Padiou, Fabrice Drouin, Dominique Padiou founded ACINQ In 2014.
Seed round, Oct. 4, 2018 - $1.7M
Lead investor - Serena Capital
Total investors - 5
It is a full Implementation of the Lightning Network written in Scala available on Linux, Windows and MacOS. It is an open-source software which has both command-line and GUI on it. It is very easy to launch since it has a .exe and .dmg files.
Strike is a stripe-like payment processor API for lightning payments, which you can include on your website through a plugin, Woocommerce is currently available and Prestashop and Shopify support coming soon. The service costs 1% in fees and pays you through a bitcoin mainnet transaction.
Eclair Mobile is an open-source bitcoin and lightning wallet, that uses the electrum protocol to connect to random nodes or to one of your choosing. It is a lightning network node but it is not a full implementation since it doesn't allow to receive payments. This feature will be added soon.
They are the owners of one of the largest nodes of the network by capacity, currently second, and one of the most reliable nodes.
Acinq's revenue model is clearer than Lightning Labs. They charge fees for their payment processing service, Strike. They also collect routing fees through their Lightning node. They are positioned to further offer services or develop proprietary technologies using Lightning.
Shared value added activities
These companies gain a lot of value around the fact that there is a consolidated and solid community that thrives on the ideology they share amongst themselves (cypherpunks, libertarianism, BTC values, etc).
With their respective Lightning Network implementations, they each represent a central organizational point in which they can direct the energy of contributing developers in the direction they see fit. Using community leaders in their organisation and by being strong and influential figures, they encourage others to contribute to something that is portrayed as bigger than themselves and beneficial to all.
Bitcoin is the ultimate goal, if you contribute, if we all contribute, everyone wins. This mentality allows these companies to greatly increase their knowledge bank and value by having individuals working on their own time to make the application they ultimately represent better. They end up having a somewhat decentralized workforce, where all are independent, but work towards a common goal. The contributors not on their payroll have their own incentives to do good work.
Recognition by the community, belief that they are contributing to a technological and/or societal revolution, the hope that one of these companies would employ them, augmenting the future value of the Bitcoin they hold as a consequence of the various initiatives taken to scale it, pleasure in the work they do, are just some of the reasons why these individuals would take such initiatives in working on the open-source projects.
Developing their own Lightning Network Implementations openly, and with the help and contribution of the Bitcoin community helps increase the trust users develop towards using the applications and increase the rate at which they are capable onboarding more and more users.
There is an important element in the Bitcoin ecosystem that distinguishes it greatly from other industries. Contributing time and resources to projects is held in high regard in order to gain credibility and to “earn your stripes” as a Bitcoiner. Having skin in the game is crucial, since these companies have a clear incentive to create something of value that can be used by all. Rewards, or the benefits of developing such systems, are then socialized, and the losses concentrated. The level of competition is enhanced as each company is trying to gain recognition and value versus others for their contributions. Anything going against this system is quickly spotted by the community and ousted. Failure to be seen as having a positive impact on Bitcoin inevitably leads to your downfall and loss of trust by the community. Firms must fight to be the best in very sense of the word.
Business Level Strategy
The principal Business Level strategy employed by these firms is Differentiation strategy when it comes to the products they create. High customer expectations push firms to simultaneously pursue low cost and differentiation. “Efficient production is the source of maintaining low costs, while differentiation is the source of creating unique value. Firms that successfully use the integrated cost leadership/differentiation strategy usually adapt quickly to new technologies and rapid changes in their external environments.” They are capable of achieving this strategy since they have a strong network of third parties that perform some of the value-chain activities or support functions.
Heading a community of developers dedicated to the Bitcoin cause enables them to have skills in a large number of activities and functions, thus increasing their flexibility when it comes to creating content. It also helps them adapt quickly to errors and rapidly implement improvements that are pointed out by one of the multiple perspectives at hand.
They are directly linked to their end-users, whether they be developers contributing their time, or just regular Bitcoin users, they are capable of receiving immediate feedback thanks to their information network. Tools and platforms such as Github, mailing lists, IRC and Slack greatly increase this connectivity. Having a good and open information flow allows them to adjust their strategies and products to be better prepared for the future. Accurate information on their environment also helps them make comprehensive strategic decisions.
They put an emphasis on the organization’s commitment to the customer and the continuous improvement of all processes through problem-solving approaches based on empowerment of employees (or free-lance devs). This facilitates the integration of both the differentiation and cost leadership strategies, although it doesn’t necessarily provide a competitive advantage since this system is available to all competitors.
To properly use this strategy across time, firms must be able to simultaneously reduce costs incurred to produce products (as required by the cost leadership strategy) while increasing product differentiation (as required by the differentiation strategy).
The differentiating factors observed are the brand each company represents, the code used in writing the software, the UX/GUI, their level of interaction with the community and the people that make up each team that possess a good reputation for the work they have done prior to joining the company.
This approach is shared by all three companies observed in this paper, with few discrepancies in the actual implementation or the tools used.
SWOT analysis of Lightning Network implementations
Experienced, and highly skilled teams
Multiple perspectives and inputs to improve their current products, and develop new ones
Open source software (giving back to the community and transparency)
Can’t enforce their agenda on benevolent devs
Benevolent devs work at their own will and pace
Open source software (cannot be used as a competitive advantage, not monetizable)
Develop user friendly services with good GUI/UX
BTC becomes more mainstream and they have the image and backing to take advantage of new market openings
Bear market lasts a long time, lots of capitulation, funding pulls out and/or can’t raise additional
Critical technical bugs destroys the network
Unanticipated game theory attack vector