Lightning Labs, the development team working to grow the Lightning Network, just released the alpha version of a new protocol called Lightning Loop.
Lightning Loop is designed to give users the ability to deposit and withdraw bitcoin from their payment channels (the two-way payment gateways that allow users to send and receive funds to and from each other) without closing these channels entirely.
“Lightning channels are like tubes of money: the more you send the more you can receive, and the other way around,” according to a blog post[1] written by Lightning Lab developers Alex Bosworth and Bryan Vu. “Money moves around in the tube, but the total amount of funds remains constant. So, unlike other payment systems, Lightning requires ‘inbound capacity’ in order to receive funds.”
When setting up payment channels, users have to fund their accounts with bitcoin to begin sending and receiving. “Inbound capacity” refers to a receiver’s ability to claim a certain number of bitcoin from a sender. If, for example, Molly has a payment channel set up with Angela and Molly funded her side of the channel with 2 BTC while Angela funded her channel with 1 BTC, then Molly’s inbound capacity is 1 BTC and Angela’s is 2 BTC. If Molly wants to receive 2 BTC from Angela then they’d have to open up a new channel and fund it with the appropriate amount.
If a sender does not have enough bitcoin for a given transaction, the recipient won’t be able to receive an invoiced amount through the channel. But if a channel is at capacity, then the recipient won’t be able to receive funds, either.
This new protocol’s “Loop Out” feature mitigates the latter problem. With Loop Out, a Lightning Network user will be able to empty a channel once
