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Bitcoin is too slow. Is Lightning Labs poised to fix that?

February 5, 2020, 2:59 PM UTC

Elizabeth Stark stands out in the digital currency world. The 30-something entrepreneur is at ease among crypto’s tribal subcultures, but equally so at mainstream institutions like her alma mater, Harvard Law School. The ability to straddle these two worlds make her well poised to solve Bitcoin’s most chronic problem: a sluggish network that takes at least 10 minutes to process a transaction.

Stark is the CEO of Lightning Labs, a company leading a push to create a new layer atop Bitcoin’s network—dubbed the Lightning network—that can handle multiple transactions in seconds. On Wednesday, Lightning Labs revealed it has raised a $10 million Series A financing round led by Craft Ventures, and rolled out its first commercial product to help businesses use its high-speed network.

The news comes as doubts persist over whether Bitcoin can be a useful real-world currency. Since its inception 10 years ago, people have raised concerns about the capacity of the network, which involves computers worldwide contributing to a shared public ledger that creates a record of Bitcoin transfers and payments.

Unfortunately for Bitcoin fans, even at the best of times, a transaction takes around 10 minutes to become a part of the shared ledger. And when Bitcoin trading spikes, such as in late 2017, the network becomes clogged and the process can take a day or more and involve high fees. Attempts to improve the scale of the core network have floundered, so the solution offered by Lightning Labs—a series of side “channels” build atop Bitcoin—promises a means for the cryptocurrency to mirror Visa, debit cards and other services that let people pay in an instant.

Stark says Lightning Labs, which launched in 2018 with backing from Twitter CEO Jack Dorsey and others, will soon be instrumental in facilitating so-called micropayments and other online transactions. She predicts Lightning will help businesses integrate payments in the same way as browsers helped people navigate the Internet.

Stark points out that the designers of the web, three decades ago, included an error code called 402 (similar to the better-known Error 404 for “page not found”) for “Payment Required”—evidence that the Internet was always designed to have a native money system.

“The Internet brought the world a shared communication system. Bitcoin, complemented by the Lightning Network, is bringing the world a shared currency,” said Craft Ventures’ Brian Murray.

In practice, this involves Lightning Labs building and selling software infrastructure to improve Bitcoin transfers, while other startups develop applications to make the network more user friendly.

But while there is considerable enthusiasm for Lightning Labs among the cryptocurrency set, it’s far from clear whether the Lightning network—or even Bitcoin itself—is gaining any ground amid a crowded digital payment space in which consumers can easily use the likes of Venmo, credit cards or Apple Pay to move money around.

“The narrative of Bitcoin or another cryptocurrency as “digital gold” has overtaken the idea of crypto as a mainstream payments mechanism,” says CB Insights analyst Alex Kern, who added that tax and regulatory issues have also impeded Bitcoin from catching on as everyday money.

Stark, though, is optimistic that Lightning will help lead more companies to use crypto for payments. She points to growing adoption in the video game community and with a work-for-hire service, similar to Amazon’s Mechanical Turk, that lets users earn small amounts of crypto by performing tasks for others.

The new $10 million funding infusion, Stark says, will help Lightning Labs, which has 16 employees, build out its business side and create more products. Meanwhile, the company is generating buzz in the crypto world, but it remains to be seen when—if ever—Lightning will push Bitcoin further to the mainstream.

“Lightning is definitely the most exciting Bitcoin payment technology today. There is a ton of potential for integrating lightning in online micropayments,” says Eric Turner, director of research at crypto analysis firm Messari, adding, “It’s important to remember that while the tech is widely discussed in the space it is still a few years out from being a finished product.”