Bitfinex CTO Paolo Ardoino: Lightning Network “Gives You an Intrinsic Sensation of Freedom and Power”
While most exchanges are busy listing the latest coins or focusing on marketing with growing number of IEOs or new games, Bitfinex seems to be much technology addicted. From using bech32 (Segwit) address and Liquid to the latest Lightning Network support, the crypto exchange is pushing hard to support bitcoin’s scaling.
Despite the fact Lightning Network being a really young technology and that major vulnerabilities were recently detailed, the deposit option appears to be proving popular following its launch, with over 800 LN transactions processed and seven bitcoin deposited on the platform in the first week.
Will Bitfinex’s move invite more users? Will other exchanges follow the tech trend? Of late, Chainnode (formerly 8btc Forum, China’s largest crypto community) had a chance to invite the firm’s Chief Technical Officer Paolo Ardoino, a cyberpunk and a supporter of Lightning Network who promotes the firm to be the first major cryptocurrency exchange to integrate LN, to have an online AMA (ask me anything) with the Chinese crypto community centering on its LN support and the firm’s plans for 2020.
Keyword 1: Lightning Network
Q1. Is LN only used to scale Bitcoin? Are there any other uses for LN?
Paolo: Scaling Bitcoin is per-se already an incredible achievement. Keeping the base layer clean is of key importance and needs definitely to happen before mass adoption. Most of payments and day-to-day use from Bitcoin users need to happen on sidechains and LN. Since Bitfinex and Tether are funding a group of developers to create a Lightning Network-based protocol to create digital assets on top of LN, I see Lightning Network be the base layer for remittances, e-commerce shopping, local merchant integrations, P2P exchanges, cloud services etc… LND few days ago integrated an update to the protocol to allow passing text messages around through nodes. This opens to a new set of P2P applications, like decentralized P2P chats (imagine WhatsApp or WeChat, …). The possibilities are really endless. It’s like a crypto-layer on top of internet.
Q2. For the moment, LN has good practicality, but how to ensure its long-term security?
Paolo: LN is a really young technology. Till today it did not suffer any major security issue and it has a lot of talented developers working on it to ensure it grows as a safe environment. I believe than there is a lot of FUD around Lightning Network to try to discredit its potential. But as a pure technologist, developer and cyberpunk I can only say that it’s the right way to build a second layer for indefinite scalability. Give it 1 or 2 years more and channel sizes limits will increase or eventually get removed and reliability will improve vastly. Already today I never experienced a single issue with my LN nodes.
Q3. What do you think are the biggest barriers to the usability of LN? Any further improvement needed for its mass adoption?
Paolo: Lightning Network, as any new technology, is focusing first on the stability, scalability resilience of the protocol, leaving user experience as last step. Indeed user experience will be one of the main challenges for mass adoption. Even Bitfinex implementation of LN deposits and withdrawas can be widely improved in terms of usability and we are working hard to provide a flow update in the next month. It’s important to note that recently we are seeing more and more mobile wallets designing impressively smooth payment flows based on Lightning Network. So usability will catch up in the 2020 for sure.
Awareness and eduction will be the next step for mass adoption, but I’m sure it won’t be a problem either. It’s pure evolution.
Q4. The development trend of LN nodes is pretty much like the early phase of Bitcoin mining, so do you think the LN will become more and more centralized?
Paolo: It is possible that Lightning Network will see major hubs that will act as major routers for LN transactions. These hubs will be companies that will see this as an opportunity to be rewarded to maintain a healthy infrastructure and routing service. I foresee anyway that we’ll see also mid and small size hubs and in parallel a growing set of personal nodes. To me it’s important to educate users to run their own LN node, using a Raspberry Pi so they can be part of the resilience and growth of the future micro-payment system.
Keyword 2: Exchange + LN
Q5. Bitfinex had previously launched to support Segwit, Bech32 and Liquid, what’s your vision for all these new technologies? Why do most other exchanges integrate these technologies so inefficiently? Some exchanges claimed to support Liquid but few have really done it.
Paolo: Most exchanges are engaged on a day-to-day battle to list the latest coin or are incredibly marketing oriented. While indeed these are important things and customers are always excited to get access to new digital assets, it’s important that exchanges maintain the role of technology leaders and supporters. Bitfinex always focused on technology first. Everyone that works in Bitfinex is excited by what cryptocurrency can represent for the finance of the next decades, so as crypto-enthusiasts, we focus with passion to harvest the most promising and game changing projects and support them in our exchange. Lightning Network and Liquid are two of these projects.
Liquid is a great enterprise grade Bitcoin sidechain. At Bitfinex we recognize that it’s important for crypto-platforms to integrate layer-2 and sidechain solutions to avoid to bloat the base layer. Base layers should act only as settlement layers for higher level layers. Only in this way we can achieve high scalability.
Liquid was a really simple integration I must say, so it’s almost sad to see that only few exchanges are showing a real support to it. As it happens for Lightning Network.
Q6. What’s the main consideration for Bitfinex to integrate LN? What does LN mean to a crypto exchange?
Paolo: At Bitfinex we believe that the role of a crypto-exchange, as one of the main components of our industry, is to support and integrate with the most important and promising projects in our ecosystem. Historically exchanges have been gateways and first point of contact between new users and cryptocurrencies, providing valuable information, education and more. Lately the competition among exchanges intensified and focused more on day-to-day business leaving aside the innovation spirit that characterized the early years of our industry.
Sometimes we seem to be forgetting that exchanges surged on the bleeding edge technology that is Bitcoin and pushing really hard to support the exponential innovation curve was a key factor in such revolutionary ecosystem. Bitfinex led this process and should not forget its history and soul. That’s why early supporting technologies like Lightning Network is simply a natural process for us and should be for crypto exchanges in general. In addition to this, Bitfinex is a developers driven company when it comes to strategy, so it’s really easy for us to be excited for what could be one of the most important base protocols of the next decade.
As last consideration, I’m sure that once an exchange like Bitfinex shows such commitment to a technology, other exchanges will be forced to follow our lead.
Q7. At the beginning of the year, the crypto community set a high expectation on LN, expecting LN to push forward the development of Bitcoin micro-payment and even to usher in the next bull run. But the fact was the transactions on Bitcoin’s original blockchain have slipped, LN nodes and network scale have stopped growing. Why did Bitfinex choose to integrate LN at such a time? What’s your vision for Bitcoin’s second-layer protocol?
Paolo: 2019 was not a bad year for Bitcoin price I believe. It basically doubled. Of course for whom is invested in Bitcoin, there is always a lot of anxiety to see every month great developments that can bring the price to increase. Sometimes great things require more time than what was accounted for. Lightning Network is one of those things. I believe that the sum of Lightning Network getting monthly more production ready enabling new businesses and halving will make a big difference in Bitcoin price in 2020.
When it comes to the number of LN nodes, it is true that is temporarily stopped, but I’m also sure that we are at a point that while the technology improves, we need to work harder on education and user experience. We need to teach how to run your own node at home, how to install it on a Raspberry Pi and connect to other nodes. It takes time. We’ll get there. Bitfinex loves technology and Bitcoin. It is natural for us integrate early technologies that can make a difference for the revolution our industry is trying to bring.
Keyword 3: Exchange + LN + Users
Q8. How could average users use LN?
Paolo: Average users should download a wallet like bluewallet and just test sending 0.0001 BTC to Bitfinex and withdrawing it back. It feels …. different. When you send a transaction on a normal blockchain you know that the transaction gets broadcasted to a mempool and then that will be included eventually in a block to confirm it. When you send a LN payment, you have to think that your transaction is getting routed between a lot of nodes to reach finally destination. It gives you an intrinsic sensation of freedom and power.
Q9. I’m excited to see LN integration on Bitfinex, I’ve tried LN deposit and withdrawal (on Bitfinex) but the experience was not so good. I’ve created an LN node myself, with channels to Bitrefill and some other major LN Nodes, but not Bitfinex. I eventually found the maximum deposit is only 0.001BTC, why such a small amount? That’s somewhat disappointing to me.
Paolo: Lightning Network limits channel size in order to make the adoption more secure for everyone. Right now channel size on Bitfinex is 0.04294967 BTC although we limit deposit and withdrawals to 0.02 BTC. You can test that with bluewallet or other Lightning Network enabled wallets. Where did you find 0.001BTC limit? That said, I believe it’s important to be aware that Lighting Network is a technology still in really active development, so, in order to offer a reliable and safe service to Bitfinex users, Bitfinex is respecting the currently suggested limits from LND developers. If you need to send big amounts of BTC you can use Liquid or Bitcoin main chain. So there is no need to be worried of such low limit: it is temporary and it makes testing and integration by businesses and users much safer. We should not be in a big rush when it comes to such important technology.
I also believe that the exciting part of this technology is not just sending back and forth Satoshis really fast, but it’s what it represents: a P2P payment service properly designed, incredibly resilient and scalable.
Q10. When a new user opens a payment channel, he will not be connected to the rest of the network, and the counterparties (of transactions) are not all equal. As there are thousands of nodes for the user to choose, how can the new user make the best choice for the first channel as counterparty?
Paolo: We’ll see some major hubs growing as main connectivity points for new users. Bitfinex aims to become one of those. In next months we’ll see more exchanges and companies offering such services as their main business model. So it will become easier and easier for users to find good curated lists of nodes to connect to.
Q11. I think a fatal problem of the LN is the difficulty for average users to use. You need to lock Bitcoin in the channel, and most of the payments are one-way. For example, the settlement between exchanges and payment gateway is mainly one-way transactions. The Bitcoin in the channel will be drained in a short time, and every settlement means opening/closing the channel once. This will increase transaction fees, and reduce merchants’ willingness to adopt LN. What’s your take on that?
Paolo: I agree that user experience is key here. Channels can be settled periodically manually but indeed we need more tools like https://github.com/lightninglabs/loop that aim to make the experience better. There are interfaces like RTL that will improve node management by far. Still all this needs to be designed for mainstream adoption. Tooling has still some lengths to go, but while the protocol matures we’ll definitely see that.
Keyword 4: 2020
Q12. What do you think are the most interesting technologies for crypto exchanges in 2020? Why?
Paolo: Bitfinex has been always pushing hard on technology and trading products. In 2020 top-tier exchanges will enter in a more mature phase of the crypto-industry where the technological battle will intensify (Lightning Network support, DEXes, non-custodial trading, …) and there will be the need to find new business streams like prediction markets, new derivatives products and security tokens. Bitfinex focused its entire 2019 on these products and we think to have a good advantage towards competition. That said, one of the biggest challenges of 2020 will be new potential regulations coming into our space. Bitfinex worked really closely with regulators for its entire history to ensure a safe environment to its users. It’s hard to predict what will happen but exchanges must be ready to handle such events in the best way possible for their users.
Q13. As one of the oldest and most well-known crypto exchanges, Bitfinex is not taking much advantage of the competition, while some other exchanges have been growing. The IEO heat of 2019 seems to be going quiet eventually. What is Bitfinex’s plan for market development? What will you do to compete in the battle among crypto exchanges?
Paolo: In the last year, competition increased incredibly and you could potentially say that Bitfinex lost quite some market share. But if you look at Bitfinex crypto cold wallets you can see that we are still one of the top 3 exchanges by wallet size. Unfortunately there are companies that focus more on marketing and loud voice rather than pure technology advancement. Don’t get fooled by such behaviour. Bitfinex has a long history of resilience and humble work to support the industry. Few other platforms can say the same. Recently crypto-industry has a strong feeling for Bitfinex, that was able to raise in 10 days 1 Billion dollars equivalent for Unus Sed $LEO token. Again, this is an important sign that Bitfinex is stronger than ever. At the moment of Unus Sed LEO token sale we published our whitepaper. This whitepaper contains a lot of our philosophy and long term plan.
We recently launched our 100x futures and perpetual swaps markets. We’re currently working on crypto-options, security tokens offerings and prediction markets. At the same time we are contributing and investing in projects that continue to bring new vibrant energy to our industry.
Also, as you said the IEO market slowed down in the last few months, but we are aligning few impressive projects that chosen Bitfinex as their token sales platform. As mentioned before, Bitfinex focuses on few quality projects rather than on the quantity, because it is important to protect our customers from the dangers of poorly designed investments. We are doing all this with less than 25 developers including frontend, backend and QA.
Q14. Bitfinex seems to be never really into the Chinese market. Any plans for the Chinese market in the coming year?
Paolo: Bitfinex aims to grow communities over the world. We consider ourselves a global company, but instead of focusing on pure marketing, we prefer to acquire new customers showing a real dedication to our industry and our communities around the world. We created impressive community tools lately in Bitfinex like the Affiliation Program, Developer’s reward and social reward to help communities to grow healthy. China has one of the most vibrant and visionary crypto-communities and governments. We are humbled by the support the Chinese community is giving to Bitfinex and we hope to see it growing even to a faster pace in 2020. Since we are into this industry for the long run, we believe that our hard work will be repaid by the trust of Chinese users.