Second layer solutions like Bitcoin’s Lightning Network and IOTA’s Flash Channels aim to solve the scaling issues inherent in today’s tech by offering high volume transaction processing and getting the digital assets ready for the ‘mass adoption’ the industry has long coveted.
Bitcoin’s blockchain currently supports 7 transactions per second, which is paltry, in comparison to Visa’s 56,000 transactions per second rate (though it rarely exceeds 1,700 TPS). Which tells us that Bitcoin is still a long way from being the global remittances alternative it was purposed to be.
While IOTA on the other hand, logs an average of 500-800 transactions per second. The IOTA team, in 2019, claimed to have gotten the network’s transaction processing capabilities up to 1000 TPS, which is great, but still a far cry from incumbent global payment systems.
We took a peak under the hood of these technological innovations, and weighed one’s usability against the other to see which was better positioned to support large scale commercial use. Before we present you with our findings, lets give you a breakdown of the two technologies.
The Lightning Network is Bitcoin’s second layer payment solution, designed to process Bitcoin transactions off-chain, almost instantaneously, and with minimal – if any – costs.
The solution was first proposed in 2015 by Joseph Poon and Thaddeus Dryja. It wasn’t until August 2017, however, that the solution became a viable scaling solution, when the SegWit (Segregated Witness) protocol upgrade was implemented on the Bitcoin blockchain. SegWit was so contentious that it caused a split in the network, which spawned the Bitcoin Cash asset.
Lightning, which went live on March 15th of 2017, requires a user to first commit a transaction via the base blockchain, thus opening a Lightning payment channel. Once the funds are committed, one is then able to wire as many transactions as one pleases, without waiting to confirm them on the blockchain. Once one has completed the payments, one then closes the channel, which will broadcast the finalised balance to the blockchain. In essence, multiple payments made over a Lightning Channel, will be recorded as a single payment on the base blockchain – once the channel is closed.
Lightning Network is designed to enable one to send micro payments at little, to no, cost. Current fees, However, are set at $0.50 which is 50 times the cost of Ethereum transactions.This may change as Lightning adoption takes off. It currently, does not seem fit for micro payments though.
Now Flash Channels Are the IOTA network’s second layer solution. Remember that IOTA’s network operates on a DAG (Directed Acyclic Graph) model, as opposed to a blockchain-based distributed ledger. The network is set up to scale. Which begs the question: why would they need a second layer solution in the first place? Well Flash channels are designed to support use-specific applications where high transaction throughput, as well as speed are a neccesity. While IOTA itself is set up to be fast, there’s still a nominal amount of computing one must do before a transaction is processed.
Flash Channels operate in similar fashion to Lightning Channels, in that, transactions are only broadcast to the base network once the channel is closed. Except IOTA Flash Channels bare no extra costs, seeing as IOTA is fee less.
In addition to being fee less, IOTA Flash Channels require require no nodes. That’s right, Zero NODES. IOTA is of the opinion that intermediaries operating nodes might lead to centralisation, so instead they employ WebRTC to connect channel participants directly, in a way similar to people operating a multisig wallet.
With our two competitors having duked it out, we’re ready announced a winner. In the mass use department, there are currently more people using Bitcoin than IOTA so by virtue of that, Bitcoin takes the lead, this may change however, as IOTA is currently developing IOT (Internet Of Things) solutions for multinational firms like Jaguar, Bosch, Fijutsu, and Volkswagen.
In the Ease Of Use, Speed and Cost Effectiveness department, IOTA Flash Channels leave Lightning in the dust. Requiring no fees to open and close wallets, nor any sort of special token for that matter. IOTA also requires no nodes. As far as second layer solutions go, IOTA Flash Channels seem like a less cumbersome answer to the blockchain scaling problem.