- Seven months after announcing its intention to include the protocol, Coinbase is now providing Lightning Network functionality.
- The integration allows its users to send, receive, or make payments using Bitcoin more quickly and affordably than competitors in the cryptocurrency exchange market, such Bitfinex, Kraken, and Binance.
With the launch of Lightning Network functionality today, Coinbase—the biggest cryptocurrency exchange in the United States based on trade volume—will allow its customers to send, receive, or make payments using Bitcoin straight from their account at a faster and more affordable rate.
Bitcoin transfers on Coinbase used to be handled on-chain, which meant that during times of network congestion, transactions may take anywhere from 10 minutes to two hours and would result in expensive fees.
In order to solve scalability issues, the Lightning Network, a Layer 2 protocol built on top of the Bitcoin BTC -5.53% blockchain, was introduced in 2017. Its goal is to enable near-instantaneous, low-cost transactions off-chain without immediate settlement on the base layer using bi-directional payment channels.
Global economic freedom rises as Bitcoin use rises. Protocol specialist and Lightning integration lead at Coinbase Viktor Bunin said, “I’m excited that our Lightning integration is live to make Bitcoin more useful and accessible worldwide.” Another significant step forward for the ecosystem is our collaboration with Lightspark to provide quicker and less expensive Bitcoin payments.
The Lightning Network charges two types of fees: a liquidity provider fee, which is a percentage levied on the payment amount, and a flat rate base fee as low as one satoshi, which is the smallest unit of bitcoin and equal to less than $0.01. The network’s node operators are able to adjust their fees to make up for liquidity locking.
According to Bunin, Lightning transactions on Coinbase for sends only have a 0.1% processing cost; these transactions should be completed in a matter of seconds. According to him, Coinbase users will only be able to withdraw a total of $2,000 at launch, which means there will be a $2 maximum withdrawal charge. This is less than transactions on the Bitcoin blockchain but more than the typical Ethereum Layer 2 transaction.
Although Lightning can handle arbitrary large Bitcoin sends, the average payment success rate decreases as payment size increases, so a cautious restriction was chosen, according to Bunin. “A lower limit that is set at launch will enhance the experience for our customers and can be changed in response to input from users and as network liquidity grows.
According to Coinbase, users may now move bitcoin globally for 20 times less than the typical credit card transaction fee of 2% and the little amount of $30 paid for wire transfers thanks to its Lightning Network integration. This information was disclosed in a statement published with The Block.
While users in compatible locations would be able to choose between Lightning and the Bitcoin base layer for withdrawals and payments thanks to the integration, Coinbase did not indicate which regions would be supported at launch. Currently, not all regions have access to the Lightning Network Integration. Bunin stated, “We’re providing support case by case.
For the integration, Coinbase collaborated with Lightspark, a provider of Lightning Network infrastructure. David Marcus, the CEO and co-founder of Lightspark, has experience leading teams at PayPal and Meta, where he oversaw the latter’s Diem stablecoin project.
On April 3, Lightspark was chosen as Coinbase’s integration partner. Marcus referred to this announcement as yet another “significant milestone” for Lightning at the time.
According to Bunin, there are currently no plans to integrate Lightning with Coinbase Wallet, the company’s web3 non-custodial wallet, or any other Coinbase services or products. He went on, nevertheless, to say that in order to direct any future development into products like Coinbase Wallet or its cryptocurrency payments tool Coinbase Commerce, the team would actively watch the Lightning Network’s growth and its uptake by Coinbase users.
Although the number of users who will utilize Lightning to transport Bitcoin is unknown, we are encouraged by the uptake of Layer 2s in other ecosystems. Bunin went on. He added that although the use, uptake, and traction of Layer 2s on Bitcoin and Ethereum are obviously very different, we generally expect Layer 2 usage to increase over time as users seek out cheaper and faster transactions. On Ethereum, approximately 35% of ETH sends were made via Layer 2 protocols like the Coinbase-incubated Base network.
Coinbase’s inclusion of the Lightning Network follows some of its biggest competitors in the cryptocurrency exchange market. The first significant cryptocurrency exchange to support the Lightning Network in 2019 was Bitfinex. In 2021, OKX introduced support for Lightning, followed by Kraken in 2022, and Binance completing the connection in July 2023.
In response to a question regarding why Coinbase has taken longer than many of its competitors to integrate the Lightning Network, Bunin explained that it was necessary to assess the Layer 2’s uptake and growth before putting support in place.
In addition to adding Lightning support, Coinbase’s venture arm has made investments in a number of Bitcoin-related businesses, such as the decentralized exchange Portal, Layer 2 rollup BOB, and self-custodial storage solution Casa.
Disclaimer : This article was created for informational purposes only and should not be taken as investment advice. An asset’s past performance does not predict its future returns. Before making an investment, please conduct your own research, as digital assets like cryptocurrencies are highly risky and volatile financial instruments.
