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In a blog post, the Lightning Network (LN) has announced the release of Lightning Pool. It’s a non-custodial and peer-to-peer marketplace for acquiring inbound liquidity. With the Lightning Pool open for business, the network has opened gates for earning a yield on Bitcoin by leasing liquidity on Lightning.
What is Lightning Network, and how it works?
Lightning Network (LN) aims to solve the issue of stability on the Bitcoin blockchain by building a second layer on top of it. Therefore, it enables users to transfer Bitcoins in real-time without any transaction fees. The Lightning Network specifically targets the ease of making micropayments in Bitcoin.
To facilitate instant payments, the network facilitates something called payment channels. The transactions made on these payment channels stay off-chain from the blockchain network. Users can make as many transitions as they want over these payment channels. Thus creating a second layer of a ledger requires only the opening and closing transactions to be facilitated over the main blockchain.
However, to open a payment channel, both the parties need to make a deposit. Besides updating the second ledger from this deposit, it also ensures a fraud protection mechanism if one of the parties tries to cheat. However, it doesn’t require you to open a separate payment channel every time you transact with a stranger. The Lightning Network achieves this via Network channels that allow payment channels to connect indirectly, via intermediaries.
Lightning Pool goes one step further by making Lightning liquidity a tradeable asset. With Lightning Pool, users can now earn rewards for staking their assets and opening up new payment channels. This is aimed towards solving the lack of inbound liquidity on the network. Thus hitting two birds with a single stone provides liquidity on the network and enables users to earn a yield on real Bitcoin without trusting a third-party. Lightning Pool can turn out to a major milestone for Bitcoins in retail payments.