The Bitfury Group, together with the Lightning Network team, has issued a white paper on how the new micropayments routing algorithm, called Flare, can be used for bitcoin transactions on the Lightning Network.
The system involves two phases: an update of the routing map, which stores data about network topology and gathering of data about the topology when requested by the Lightning Network. Payment channels are verified using data on the bitcoin blockchain and information provided by the parties.
According to the developers, their main goal was to enable the network quickly find routes for payments. Besides, they wanted to reduce the amount of data stored on devices and keep the system decentralized.
Flare was built as a decentralized network that transfers payments without the need to trust third parties. For instance, parties may not be required to create a direct payment channel to finish a transaction.
“Flare will allow for huge scalability of the transaction processing power of the Bitcoin Blockchain network, with transactions per second (tps) capacity potentially exceeding that of legacy payment rails (such as Visa or PayPal),” Bitfury said in a blog post.
Developers expect that after the implementation of the system it will be able to process at least 400 transactions a second per one channel and over 100,000 transactions a second in total.
The paper states that according to performed simulations the algorithms can operate with at least 100,000 nodes.
“We estimate that the algorithm could scale for at least millions of network users. As simulations show, it is enough to store paths to about the square root of the number of nodes in the network (provided nodes are reasonably well connected). For a network with 100,000 nodes, it is enough to store paths to just 600 nodes,” the paper said.
The paper also mentioned an unsolved problem with the algorithm and the Lightning Network itself. The issue is that for the routing to operate a large number of nodes need to remain online, what is absent in bitcoin and all centralized payment systems.
“At the same time, unless the network functions efficiently, there may be little incentive for people to put their Bitcoin in LN channels. Ideally, a wide array of industry and community participants would run LN nodes, helping to bootstrap the network,” the paper reads.
Meantime, the network urges nodes to stay online by allowing them to earn transaction fees by routing payment channels through it. The launch of the system in the test environment is planned for the end of July.