When it comes to scalability solutions for Bitcoin, SegWit and Lightning Network immediately come to mind. Scalability though, is a challenge for all blockchains. Ethereum, for instance, has been struggling with it over the last two years. Recently, high congestion on Ethereum was triggered by the Cryptokitties phenomenon. As similar congestion problems occurred on different blockchains, experts agree that scalability is one of the most important challenges for blockchain technology. Designing a blockchain that can process a high number of transactions fast and at low costs, while at the same time not compromising decentralization, is a hard task. However, it is crucial if we want blockchain technology to compete with traditional payment processors. Bitcoin’s store-of-value narrative is powerful, but the real benefit for society will only happen when Bitcoin reaches hundreds of millions of people. In the end, it all comes down to one simple thing: widespread use-cases.
As we expect blockchain technology to compete against traditional alternatives, increasing the rate of TPS (transactions per seconds) is absolutely required. On this regard, RIF Lumino can make the difference. What is RIF Lumino Network all about and what is its value proposition? Before getting into the details, it’s useful to remind some past Bitcoin improvements regarding scalability.
On July 2017, SegWit soft-fork was activated in the Bitcoin network to slightly improve the scalability on Bitcoin´s network and to fix other protocol problems. But what´s is SegWit and how does it work?
Each time a transaction is broadcasted on Bitcoin´s network, the transaction includes information such as the amount to be sent, addresses that will receive funds and one or more digital signatures that authorize the use of owned funds to cover the transfers. In average, the signatures can consume around 25% of the transaction space. Bitcoin blocks have a maximum size of 1 megabyte. SegWit moves the signatures to another part of the block that is not restricted by the block size limit, and provides a small space increase, which results in the possibility to add more transactions to a block. The Bitcoin community is also evaluating a new soft-fork that enables the use of Schnorr Signatures, which could further reduce transaction sizes by aggregating multiple signatures into a single one.
Now, if we can already reduce on-chain transaction sizes, what’s the purpose of the Lightning Network?
The Lightning Network is basically a second layer network built on the concept of payment channels. Two bitcoin users can open a payment channel, and afterwards exchange transactions that can be validated almost instantaneously. Transactions happen off-chain, without the typical blockchain waiting times. Every party involved in a payment channel, maintains a record of the channel´s final balance. The process ends when this information is sent to the main chain so that, after proper verification and validation, the balance is settled on the main chain. Therefore, thousands of off-chain transactions could be consolidated into a few onchain transactions managing a payment channel. Now, even though Lightning Network and SegWit are indeed great contributions in terms of scalability and cheaper transactions, they cannot scale Bitcoin beyond certain limits established by the Bitcoin protocol. That’s where RIF Lumino Payments comes in. Let’s get into it.
First of all, it’s important to clarify some key concepts to avoid common misconceptions. As explained by IOV Labs’s CEO, RIF OS (RSK Infrastructure Framework Open Standard) is a suite of open decentralized infrastructure protocols that relay on blockchain based smart contracts to enable faster, easier and scalable development of distributed applications (dApps). The initial protocols include RIF Identity (a naming service protocol), RIF Payments (an off-chain payment protocol), RIF Data (a data storage and streaming protocol), RIF Communications (a secure routing, session and encrypted communications protocol) and RIF Gateways (an interoperability protocol that includes cross chain transfers and oracling services). However, this is just one part of the equation. RIF is also a utility token, which provides access to all these services. Summarizing, RIF Payments is one of the protocols of the RIF OS proposal on an ecosystem. It’s a key service that supports efficiently paying for the service provided by some of the remaining components where the RIF token is required. Now, we still have one piece of the puzzle missing though, right? What is Lumino?
As described on the original paper by RSK & RIF Chief Scientist, Sergio Lerner, Lumino Transaction Compression is an alternative for scaling a blockchain that achieves high compression ratios. Sergio and his team developed the LTCP (Lumino Transaction Compression Protocol) which removes unnecessary signatures and also compresses transactions using user-defined presets. Having in mind that signatures take 70% of the transaction space on RSK, it’s really easy to understand the great value of this protocol.
Now, doesn’t that ring a bell? We talked before about SegWit & LN contributions to increase available space and TPS rates on each block. On the same direction, RIF Lumino Network allows parties to transact off-chain using payment channels. Why would you need RIF Lumino Network if you already have Lightning Network? Because, Lightning was originally designed to provide further scalability on Bitcoin’s network whereas Lumino translates that same concept to a sidechain on top of Bitcoin’s blockchain, which is exactly what RSK is all about. LN and RIF Lumino Network are not competitors. They work together and complement in order to provide further scalability on different layers (main chain, side chains, etc).
Why would you be interested to provide scalability on a different layer than the main chain? Because Bitcoin’s network was not originally designed by default, in contrast to Ethereum or other blockchains, to allow developers to code & run smart contracts. RSK plays that role and RIF Lumino Network is the instrument to provide scalability for all the different RRC-20 tokens that want to use the network, on which transactional costs are paid in RBTC. RIF Lumino Network will enable off-chain payments for any token living on the RSK Network and this is absolutely necessary to scale the number of payments without network congestion.
Summarizing, RIF Lumino Network is a third-layer solution that enables payment channels for every token built on RSK increasing transaction throughput while at the same time reducing costs. For further information, we invite you to visit https://developers.rsk.co/rif/lumino/. Get started today and start experimenting with the RIF Lumino Network!