How much do Bitcoin Casinos really need the Lightning Network?

17 September, 2020

Bitcoin's speed and scalability issues have been well known for a long time. Indeed, those issues are the impetus behind developing the Lightning Network, a second layer project designed to take the stress off Bitcoin's network by processing smaller transactions and then bundling them before adding them to the BTC blockchain.

The Lightning Network's promise is one of faster, cheaper transactions. Online gambling is said to be one of the industries that would most benefit from the Lightning Network by making it faster and easier to transmit large volumes of Bitcoin between operators and players. However, with the Lightning Network still in beta phase, hopes of it becoming a widely used tool in the gambling space are still just that. It is enough to lead one to wonder how much Bitcoin casinos really need the Lightning Network.

How the Lightning Network works

To understand what the Lightning Network is, you need to understand what Bitcoin is not: fast. Comparing the speed of the Bitcoin network with the Visa and MasterCard networks is like comparing a bicycle to an F1 race car. You don't even have to run a race to know that it wouldn't be a competition.

Bitcoin's lack of speed is linked to its lack of scalability. On its best day and with traffic being optimally managed, Bitcoin is still only capable of handling seven transactions per second. That might seem like a lot but remember that Bitcoin's market capitalization currently stands in excess of $190 billion. There is a lot of coin floating around out there. The network simply cannot keep up.

The Lightning Network is a separate network that acts as a second layer to Bitcoin. It was designed specifically for this purpose. As such, its underlying mechanics make it faster and scalable. Its goal is to speed up the Bitcoin network by reducing the number of transactions that network has to process.

Bundling smaller transactions

Bundling is the primary mechanism by which the Lightning Network does what it does. Smaller transactions that are below a certain threshold are funneled away from the main Bitcoin network and onto the Lightning Network for processing. When a certain number of transactions have been completed, the Lightning Network bundles them into a single transaction and sends them to the Bitcoin network.

This works for the purposes of Bitcoin's blockchain because that blockchain does not need to have all the details of every transaction to operate. All it needs is a record of coins moving from one wallet to the next. The Lightning Network can keep track of all of the little details in its own blockchain.

Lightning's payment channels

This brings us back around to the fact that online gambling is said to be one of the biggest beneficiaries of the Lighting Network. One of the tools the network uses to keep things moving along quickly is something known as the 'payment channel.' A payment channel is a private channel between Bitcoin users that allows them to conduct transactions among themselves without sending those transactions to the Bitcoin network.

In theory, you could open a payment channel between yourself and an online casino. You and the casino could swap funds back and forth via deposits and withdrawals. When you are done conducting business together, you can conduct a final transaction that officially determines how much coin each of you possesses. That final transaction is the one that gets added to the Bitcoin blockchain.

Payment channels are astronomically faster because they can record transactions as fast as the participants' devices can communicate. There is virtually no lag time. Moving coin back and forth over a payment channel is also free. That means there are no fees associated with your casino business. Only when your final transaction is added to the Bitcoin blockchain will some sort of fee be assessed.

Just a few more months

By all accounts it would seem that adopting the Lightning Network is a no-brainer for online gambling operators. Yet adoption has been slow.

The frustrating thing about the Lightning Network is that it is always just 'a few months' away from being ready for prime time. After several years of aggressive development, the network is now up and running in a beta version. That is a very positive sign. Yet there are still a lot of bugs to work out of the system.

If I am a Bitcoin casino operator, I am not excited to sign on to a new payment network that is still working out bugs. I have no confidence in a system I know was still buggy - especially if that system wants to handle my money. So what do I do? I hold off until the network makes that jump from beta to full production.

There are other solutions

Unfortunately for the Lightning Network developers, other options are starting to pop up. Ethereum is one example. ETH may not have the market capitalization and price support BTC has, but it is a lot faster. The Ethereum network can still process transactions faster than the Lightning Network.

Ethereum has another advantage: it offers applications above and beyond mere payments. Because it was developed as an application building platform, Ethereum could be the foundation on which an entire online casino's operation is built. It could be used to power everything from payments to proving fairness to actually running the games themselves.

Another potential solution is Bitcoin SV. As a fork of Bitcoin Cash, the main feature of BSV is its rather large block size. Its blocks are 132 MB. Best of all, BSV's architecture has purposely been designed to be scalable. Where it could take the BTC network up to 10 minutes to process a transaction during peak times, the BSV network can do it in mere seconds.

Popularity doesn't equal function

It is clear that Bitcoin casinos need the Lightning Network if they want to continue accepting BTC. Therein lies the real challenge. Is BTC still the best cryptocurrency to conduct business with? That depends on who you ask.

No one challenges BTC in terms of its market popularity. It is the clear winner. BTC's market capitalization is by far the highest. Its price in U.S. dollars is the highest among all cryptocurrencies. BTC also rules the day in terms of media coverage, public awareness, and government scrutiny. Simply put, Bitcoin is popular.

However, popularity does not necessarily equal function. Just ask all of those people who owned a pet rock back in the 1970s and 80s. Pet rocks may have been popular, but they didn't do anything. They sat on a shelf collecting dust.

There is no debating that Satoshi Nakamoto got the ball rolling on cryptocurrency with Bitcoin. It is hard to argue against Bitcoin paving the way for all the other cryptos that came after it. But it is foolish to look at Bitcoin, as a software application with practical purposes, and ignore its obvious shortcomings.

Bitcoin lacks critical function. And because it does, it has not managed to achieve the lofty goals Nakamoto originally set for it. That is not necessarily a bad thing if you believe in the concept of taking someone else's work and improving on it. Bitcoin laid the foundation upon which others are building. And those other projects are providing the function that Bitcoin lacks.

A good project

History will likely record the Lightning Network as an incredibly good project intended to improve Bitcoin. And should it ever make it to full production stage, it absolutely will make Bitcoin better. But will it make Bitcoin good enough to become a full-fledged monetary system capable of competing with government-established digital currencies? Probably not.

Online gambling needs the Lightning Network if it wants to continue accepting BTC. And as long as gamblers are depositing BTC, there is no reason to not accept it. But the crypto gambling world is so much larger than Bitcoin. There are many more coins with more utility and function, coins that could just as easily be used to make gambling deposits and withdrawals.

Hopefully, the Lightning Network developers will push their project over the finish line in the near future. Here's hoping it really does speed up BTC transactions by taking some of the pressure off the primary network. Let us also hope that every day BTC users embrace the Network for smaller payments.

In the meantime, gambling operators have to keep an open mind about all things crypto. If there are other payment solutions that are faster, cheaper, and more secure than BTC and the Lightning Network, they need to be considered. After all, gambling is a business. The first priority of any business is to make money.

Do Bitcoin casinos really need the Lightning Network? Yes, if they intend to continue accepting Bitcoin payments. The Lightning Network is the only thing on the horizon right now capable of keeping Bitcoin going as a useful payment system.