To be able to fully understand the Lightning Network, why it was developed, and what its potential is, we will have to go back to the launch of Bitcoin. When Satoshi Nakamoto initially revealed Bitcoin to the world via a mailing list, one of the first reactions was; ‘great idea but it will not scale’. The first criticasters were immediately concerned with the scalability of Bitcoin transactions on the blockchain.
The reason for this is the way the blockchain works. For it to safely work, every user would have to store loads of transaction details on their hard drive, making it an inefficient system by nature. Another issue to be addressed is the transactions per second [TPS], which greatly affects its usability.
In the past, this situation had not yet resulted in critical situations, but everyone can agree on the fact that for cryptocurrencies to be adopted commercially (for example buying coffee or doing groceries), the amount of transactions per second needs to rival centralized solutions which can handle thousands of transactions per second. Otherwise, merchants cannot accept cryptocurrency payments because the price of the asset fluctuates too often. In Bitcoin’s case, the Lightning Network may help solve this issue.
The Lightning Network creates an extra layer on top of the Bitcoin Blockchain, where it can settle a large number of transactions and subsequently write it to the Blockchain as a single unified transaction. This principle is not new, we have seen it with more conventional currencies as well. Where the Euro and Dollar are linked to the gold reserves, Lightning is linked to Bitcoin as a landmark or, when needed, an arbiter.
Similarly, real-world transactions are also often collated and settled in a single transaction, rather than individually. Since the Lightning network will take many transactions off-chain it will severely reduce the load on the Bitcoin Blockchain, thus allowing it to scale to many more transactions per second, without increasing on-chain load.
For example, Pascal often gets a coffee at Starbucks on his daily commute to work, which he likes to pay for in Bitcoin. Doing so five days a week, you would bump into some hurdles, not necessarily problems, but observations to take into consideration. First, every transaction you make will be stored on the Blockchain. Secondly, the transaction fees you will need to pay for the transactions will sometimes be extraordinarily high in comparison to the actual transaction value. Finally, it will take approximately 10 minutes for your transaction to be confirmed. Very inefficient for a quick coffee to go, don’t you think?
Here’s what Lightning Network can do to help smoothen things out between you and the cashier. In this case, the Lightning network is used as a micro-payments system which leverages off-chain capabilities to settle transactions that are ultimately updated on-chain, reducing the burden on the Bitcoin network.
This basically means that instead of having every coffee noted on the Blockchain, there will only be two messages sent on blockchain (on-chain); One initiating a payment channel between you and Starbucks and another to close it when the day is over for example. Final balance is updated on-chain.
It is like going to a bar and giving the waitress a hundred dollars in advance, so you will not have to take out your wallet every time you order a beer. Afterwards, just before heading home, you ask for an update on your status and will receive your change back. The channel is now closed. Using this principle, we can scale payments on the blockchain to millions of TPS, making Bitcoin a viable option for mainstream payments.
However, for all the future benefits of a scaling solution like the Lightning Network, there are still some downsides that need to be addressed. Unlike a blockchain, the Lightning Network does require both parties to be connected permanently while the channel is open. This can lead to more centralized hubs because transactions have to be routed.
Transactions can begin to revolve around certain hubs to reach a larger group in the network. Additionally, the Lightning Network only works for Bitcoin, and would not interoperate to promote scalability and adoption of other cryptocurrencies.
There are many players in the blockchain space attempting to solve scalability, however, it is still unclear what the dominant solutions will be. Often solutions do not allow for interoperability, meaning that even if a single player solves the problem, it might persist on many other blockchain networks. This opens a whole new opportunity to solve problems on all platforms.
OPEN is building an easy solution which allows for cryptocurrency transaction integration into existing applications. It does so by linking the OPEN API to regular software, in a manner familiar to most developers. This way solutions can be shared easily using development capability that is much more available than core blockchain development knowledge.
The OPEN platform doesn’t rely on one solution’s success to enable wide consumer adoption of Blockchain technology. Instead, it encourages the use of many cryptocurrencies through the OMG SDK. Leveraging our unique API economy will allow us to connect to any scalable blockchain solution, guaranteeing interoperability and scaling. If the Lightning Network is a success, then OPEN’s API economy will leverage this, however, OPEN will capitalize on any benefit created by any other cryptocurrency as well.
The blockchain revolution will unlock trillions of dollars’ worth of potential and scalability will play a huge role on the consumer and business side alike. OPEN Protocol drastically reduces the complexity of cryptocurrency payments integration and can thus give blockchain technology a significant adoption boost.
Using OmiseGo’s SDK, OPEN will bring scalability together with interoperability of payments. OPEN Platform is very excited to see the Lightning Network and other scalability solutions develop, and are rooting for a rich and useful blockchain ecosystem.
If you are interested to learn more about how you can contribute to and benefit from the ongoing revolution, Click here!
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What is USDQ and Q DAO?
In this article, Slava Zheltov shares about USDQ, a unique decentralized stable coin that makes it easy to collateralize Bitcoin. As a Blockchain Architect at PLATINUM ENGINEERING, Slava acts as a full-stack front-end developer.
Within his team, Slava is known for impeccable track record regarding security and reliability in projects, which he’s contributed to. Read this article and start learning about a decentralization wave, currently disrupting stable coin.
The thought of your bitcoin and other cryptocurrencies fluctuating in value almost on a daily basis is a hard thing to accept. But fluctuation also affects regular money as we know it.
If we want cryptocurrencies to become the future of money it should solve the issue of volatility first. The USDQ Token is a proposal to stabilize crypto and transition it from being a speculative asset to a functional store-of-value.
First and foremost, USDQ is a cryptocurrency stable token. Like Tether [USDT]. This essentially means that its price is stabilized or “pegged” to the US Dollar. The Q DAO platform, on the other hand, is a smart contract platform built on Ethereum. The smart contract mechanism used is referred to as Collateralized Debt Contract.
This cryptocurrency is supported by any Ethereum account and is also compatible by any smart contract developed to use the USDQ exchange function. It is more steady than most non-fiat currencies available on account of this mechanism of valuation.
Where does the USDQ value originate from?
The value of the USDQ stable coin is linked to the Q DAO smart contract platform using the Collateralized Debt Contract [CDC]. This means that anyone can choose to use their own assets, in this case, bitcoin [other top 10 crypto assets will be added in future], as collateral which works as a guarantee.
This is made possible by the smart contract platform. The collateral assets are locked after being deposited into the Q DAO smart contract platform and allows the owner to generate USDQ stable tokens in return while at the same time creating debt for the same owner.
This debt is necessary because it helps to maintain the collateral inside the smart contract until it is fully repaid by the amount of USDQ tokens it originally generated. When the repayment occurs then owners of the collateral can withdraw and receive their collateral back.
The ecosystem and economy of the Q DAO platform and USDQ Token directly links both of these to the amounts being used as guarantee or collaterals.
When more users request USDQ stable coins the total amount of Collateralized Debt Contacts [CDC] will increase along with it because it is the main way to obtain USDQ stable coins. This, in turn, increases the value of Q DAO tokens. These tokens are the last component of the USDQ ecosystem and they are Ethereum based tokens whose main use is to carefully manage the operations of the fund via means of a Decentralized Autonomous Organization [DAO] system.
This includes voting rights and the capability of enforcing decisions based on majority rules. This last part is essential to the supply and demand of the Q DAO tokens.
Inside the workings of a Q DAO transaction.
Step 1: Origin of the CDC smart contract and depositing collateral guarantees
To use Q DAO tokens a user must first send a request to the USDQ platform which initiates the CDС and its respective smart contract.
Whenever a user wishes to mint USDQ, they will be asked to collateralize an amount in Bitcoin that is higher than the loan’s value. As of now, this rate is 166%.
Step 2: Generation of USDQ Stable coins from the CDС smart contract.
The user then executes another request or transaction to the platform to retrieve the USDQ that was generated on the first step. The platform also jots down the debt that is generated by this user which is the amount in need of repayment to unlock the collateral guarantee. The guarantee is always higher than the USDQ stable coins made available for the user as a safety measure.
Step 3: User makes repayment of the generated debt.
When the user finally makes the repayment of the generated debt they gain full access to the locked collateral. There is also an accrued interest fee that is meant to be paid which is accumulated daily. This means that the Q DAO tokens generated initially are taken back and removed from circulation.
Q DAO Regulations
Since the entire operation has plenty of safety measures it is very self-regulated. Because all operations begin with any user having to provide collateral which will be lower to the amount of USDQ stable coins received it creates a dissuasive control to prevent fraudulent transactions.
Q DAO Projections
The Q DAO tokens are actually indicative of another type of cryptocurrency that is completely governed by smart contracts and economic mechanisms to influence its valuation more effectively. You should keep an eye on what the future holds for this cryptocurrency as it aims to become a pioneer in the industry of stable coins and cryptocurrencies alike.
USDQ is a decentralized stable coin, which uses algorithms to offer higher stability and reliability. Fully on-chain and monitored by high-speed AI robots, ecosystem offers reliable defenses against malicious acts and attacks.
First, run in the line of fiat-pegs, USDQ is brought by PLATINUM ENGINEERING Team, looking to edge together innovative solutions in collateralization, using stabilizing mechanisms and oracles for the high-endurance stable coin. Fully anonymous, USDQ breaks limits out of this legacy world.
PLATINUM ENGINEERING is always happy to share its latest development and architecture solutions, helping stakeholders to spread improvements across crypto projects. Being an expert company on the market, PLATINUM ENGINEERING has already helped 150 crypto startups, enabling them to efficiently raise funds and introduce blockchains to their business models.
With offices in Tokyo, Thailand, Russia, Belarus, and Korea, the team is always ready to have in-person meetings, focusing on how companies can leverage blockchain technology in order to meet their unique needs. The team welcomes readers to connect on Telegram, Facebook, or LinkedIn.
This overview may not be fully exhaustive and does not assess the viability of any project, nor its team legitimacy. Readers should conduct their own due diligence before using or investing in any of the listed Stablecoins.
This article represents the author’s opinions only and should not be considered investment advice. All described functionality in the article is still under development, it can be changed/processed. Please follow the updates.
Sviatoslav Zheltov, IT Manager and Blockchain Architect in Platinum Engineering
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