Capital markets software house Cinnober is running tests on the Lightning Network to determine its potential for scaling up cryptocurrency transactions across the bitcoin blockchain.
The Lightning Network is made up of multi-hop payment channels allowing users to make frictionless bi-directional transactions between each other without recording each transaction on the blockchain. Users can make hundreds or thousands of transactions between each other and just settle the final balance, significantly reducing the network load.
Operating on top of blockchains as a second-layer, the Network seeks to address congestion issues as more transactions are passed across the ledger.
Although intended primarily for small transactions and micropayments, Cinnober is conducting research as to whether it will be possible to use the Lightning Network to facilitate instant deposits and withdrawals for cryptocurrency exchanges, and entirely trustless exchange systems as well.
Cinnober is opening itself to a new market for its trading, clearing and surveillance platform, as digital currency businesses and exchanges are increasingly drawn into a regulated environment.
The Swedish firm was one of the first 500 entities to set up Lightning nodes both on the Bitcoin mainnet and the testnet to perform tests in order to get an understanding of what the potential possibilities and limitations are.
"The Lightning Network is at an early stage — testing and pioneering use has just begun and no one yet knows if and in what manner it will help to address the current scalability issues of the bnitcoin network. If it does, the potential is huge, and we might get closer to making bitcoin functional as the 'Internet of money'," states the firm in a primer on its work. "We see a clear opportunity to bring our state-of-the-art products to the emerging cryptocurrency market and help solve some of the challenges that new technology brings."