Solving the Lightnings inbound liquidity problem is at the center of the new Layer 2 Bitcoin $BTC protocol arch

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Inbound liquidity is the ability to receive funds over Lightning, a Layer 2 payment network introduced in 2016 that enables cheaper and faster bitcoin transactions. But this receiving capacity must first be established by committing funds and making outgoing payments.

Keceli says that, much like the Lightning Network, Ark will make transactions of mainstream cryptocurrencies cheaper and faster, but the new protocol will eliminate the need for a recipient to commit funds.

Lightning has many problems. But number one for me is the inbound liquidity issue, Keceli told CoinDesk in an interview. Imagine a payment system where you need money to receive money. It does not mean anything.

Lightning Network novices running non-custodial setups quickly realize one thing: the system works more like an abacus than a bank account. Users must pledge bitcoins to a channel to create liquidity (the ability to transact on the network). Sending bitcoins (cash out) reduces your funds as expected, but receiving bitcoins (cash in) also reduces your ability to receive additional funds, as does limited space on an abacus.

The model makes sense for users who want to send Lightning payments (liquidity out), but not for users who just want to receive them (liquidity in). They too must release funds and either send payments to generate this inflowing liquidity or acquire it through other means such as liquidity markets.

This binding requirement for all Lightning users to acquire liquidity before using the system simply should not exist, says Keceli.

This objection, he explains, is what inspired him to create Ark.

The Turkish-born prodigy says he worked on Ark mostly solo and didn’t incorporate or raise any capital, opting to keep the project open source and funded by donations, but Ark is already getting attention considerable from prominent bitcoiners.

Excited to see new ideas like Burak’s coming to Bitcoin, tweeted longtime bitcoiner and Human Rights Foundation Chief Strategy Officer Alex Gladstein.

Keceli says he went down the Bitcoin rabbit hole around 2017 after watching a YouTube video about the cryptocurrency mining process. He was fascinated by how a network could generate value from electricity and decided to dive in headfirst.

I dug into the details of how Bitcoin works under the hood, Keceli said. I built a bitcoin wallet based on what I had learned, then over time I realized that bitcoin was not scaling.

This all happened during the controversial Bitcoin block size war, where a section of the community, known as big blockers, called for an increase in the standard Bitcoin block size of 1 megabyte in order to increase network capacity. Another faction, the small blockers, which ultimately prevailed, argued that blocks should be kept small to maintain decentralization.

The big blockers eventually created Bitcoin Cash, a version of Bitcoin with massive 32-megabyte transaction blocks and additional features that Keceli says would be useful for creating a Uniswap-like automated market maker (AMM).

I thought it could scale to the base layer, so I joined the big Bitcoin Cash block camp and spent a few years there, Keceli said. I wanted to build MA on Bitcoin Cash first.

But it turns out that Bitcoin Cash is not expressive enough to build an AMM, he said.

So he turned to Liquid, a federated side chain or secondary blockchain that interacts with a main blockchain, created by small Bitcoin infrastructure company Blockstream. It’s a fork of Bitcoin but with added features that Keceli and a friend eventually used to build the long-envisioned automated market maker they eventually dubbed Bitmatrix.

Bitmatrix did not achieve the success Keceli had hoped for, so the young developer put his talents to work for the Lightning Network.

I focused on Lightning, to improve Lightning, and that’s how Ark started, Keceli explained.

After Keceli turned his attention to Lightning, he was faced with the myriad of issues currently plaguing the network, as he describes them: poor user experience, suboptimal privacy, payment routing issues, and then onerous liquidity.

He started working on a Lightning wallet about six months ago to address these issues, he says, and what started as an attempt to create a top-notch Lightning wallet turned into a now-known standalone protocol. as Ark.

At some point, I realized it didn’t look like Lightning at all, Keceli explained. You can pay bills, you can get paid from bills. It’s a Lightning wallet, yes, but internally it’s a different kind of design.

Keceli says Ark is a lot like Lightning in that it scales Bitcoin by performing off-chain transactions. However, instead of requiring users to commit funds upfront as a means of establishing liquidity, the new protocol uses Ark Service Providers (ASPs) which are always active and provide liquidity services around the clock. for a fee.

Off-chain Lightning Channel payments are like a game of ping-pong; coins change hands in a 2 of 2 multisig indefinitely until the channel is closed. A multisignature or multisig 2 of 2 transaction requires the signature of two parties for the transaction to be valid.

Arks Off-Chain Payments replaces traditional channels with a shared unspent transaction output (UTXO) model that uses virtual unspent transaction outputs (VTXO), which facilitate one-way, one-time payments.

It’s like a one-time atomic payment, Keceli explained. So it’s me, I’m the sender, my partner is in the middle of my ASP, and the receiver is at the other end. We collaboratively sign the 2 of 2 to push my money to the service provider. The service provider sends the funds minus the liquidity fee to the recipient.

This latest push from the ASP is actually an on-chain CoinJoin, a way to combine multiple bitcoin payments from multiple spenders to produce a single transaction with obfuscated history and ownership. Keceli says CoinJoin gives Ark a privacy advantage over Lightning.

If Ark succeeds, will this spell become fatal for Lightning? Not really, according to the developer; the two systems would complement each other.

An Ark service provider is also a Lightning service provider, Keceli said. To be an Ark Service Provider, you run a Bitcoin Node, you run the Ark Service Provider Node, and also, you run a Lightning Node.

Development of Arks is still in its early stages. Keceli is currently focused on answering questions from the Bitcoin community and finalizing technical specifications. After that, he plans to put on his entrepreneur hat and move on to prototyping and raising capital.

The medium to long term vision for me is to build a company like Lightning Labs, like Blockstream, Keceli said. So I’m going to build Ark Labs, to build Ark’s key infrastructure, build client, daemon, CLI [command line interface]the SDK [software development kit] the tools that surround it. So I’m going to build a for-profit infrastructure company, and I’m going to raise for it.

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