The Lightning Network is well known as an off-chain Bitcoin payment protocol that offers faster and cheaper transactions. Now, it has announced a related service called Loop, which will make it easier for users to receive a continuous flow of funds. This will also ensure that payment channels stay open. Lightning explains the current situation:
“Lightning channels are like tubes of money: the more you send the more you can receive, and the other way around. Money moves around in the tube, but the total amount of funds remains constant … Lightning requires ‘inbound capacity’ in order to receive funds.”
Right now, users are responsible for ensuring that their channels have a large enough capacity to handle incoming payments. Often, that involves opening a new channel when a previous channel reaches its capacity. It is possible to refill and rebalance channels, but this is not straightforward. Loop will make things easier.
How Loop Works
Loop manages Lightning channel capacities in two ways. “Loop Out,” which is now available, allows users to drain their channel’s funds to a Bitcoin wallet after that channel becomes full. This enables the channel to handle funds once again. “Loop In,” which has not been released, will allow users to automatically replenish their channel after they spend their balance.
These features will be beneficial to Lightning users with low-capacity channels. Although Lightning itself can handle more than $4 million worth of Bitcoin, a few big services are responsible for much of its capacity. Meanwhile, the average Lightning channel has a capacity of just over $100. Clearing channels faster will allow small-scale users to move more money.
Loop accomplishes all this through submarine swaps—operations that move funds between Bitcoin and Lightning, but which only require one side to use the Lightning Network. Submarine swaps already exist, and channel refills are one of their most promising features. Loop seems to be Lightning’s official version of the technology.
Is It Really Easier?
Although Lightning claims that Loop will make it easier for users to receive payments, Loop isn’t for everyone. The tool is still in alpha, and it can only be run via the command-line. This means that Loop isn’t very accessible, although in the future an API may encourage someone to create a simpler interface or integrate Loop with another app.
Loop also does nothing to address the difficulties of setting up a Lightning Node in the first place. However, third-party products, such as Casa’s plug-and-play node, are making it much easier to set up a Lightning node. Loop, meanwhile, will simply handle the task of keeping payment channels open.
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