Coinbase Unleashes Lightning Revolution, Transforming Bitcoin Transactions

Coinbase, the leading US crypto exchange, introduces support for the Lightning Network, offering users an efficient and affordable way to send, receive, and make payments with bitcoin. Previously, Coinbase transfers occurred on-chain, resulting in transaction delays and high fees during peak network activity. The Lightning Network, launched in 2017, is a Layer 2 protocol built on the Bitcoin blockchain that facilitates high-speed, low-cost transactions off-chain. By partnering with Lightspark, Coinbase aims to revolutionize its Lightning Network integration, enabling users to effortlessly and cost-effectively transfer bitcoin globally, with fees significantly reduced compared to other payment methods.

Coinbase Unveils Lightning Network Integration, Revolutionizing Bitcoin Transactions

San Francisco, California - [Date] - Coinbase, the United States' preeminent cryptocurrency exchange in terms of trading volume, heralds a transformative era for its users with the official launch of Lightning Network support. This groundbreaking protocol will empower individuals to conduct bitcoin transactions directly from their Coinbase accounts with unparalleled speed and efficiency.

Historically, bitcoin transfers on Coinbase were processed via the primary blockchain, resulting in transaction durations ranging from 10 minutes to two hours. Moreover, during periods of network congestion, exorbitant fees were incurred.

Introduced in 2017, the Lightning Network emerges as a Layer 2 protocol built upon the Bitcoin blockchain. Its primary objective is to mitigate scalability challenges by establishing bidirectional payment channels. These channels facilitate near-instantaneous, low-cost transactions off-chain without immediate settlement on the base layer.

"As Bitcoin adoption gains momentum, economic freedom expands globally," remarked Viktor Bunin, Coinbase's protocol specialist and Lightning integration lead, in an exclusive interview with The Block. "Our Lightning integration is now live, rendering Bitcoin more accessible and practical worldwide. By partnering with Lightspark, we are offering expedited and cost-effective BTC payments, marking a pivotal milestone for the ecosystem."

Fees on the Lightning Network comprise a nominal flat rate base fee as low as one satoshi (the smallest unit of bitcoin, equivalent to less than $0.01) and a liquidity provider fee or fee rate calculated as a percentage of the transaction value. Node operators on the network possess the authority to set their fees at varying levels to compensate for safeguarding liquidity.

Bunin disclosed to The Block a 0.1% processing fee associated with Lightning transactions on Coinbase, applicable exclusively to sends. These transactions should be processed within a few seconds. At launch, Coinbase users will encounter a maximum withdrawal limit of $2,000, translating to a maximum withdrawal fee of $2. While this limit exceeds the average Ethereum Layer 2 transaction fees, it remains below those of the Bitcoin blockchain.

"We selected a conservative limit because, although Lightning supports arbitrarily large BTC sends, the average success rate of payments diminishes as the payment size increases," explained Bunin. "Imposing a lower limit at launch will enhance our users' experience and can be adjusted based on user feedback and as liquidity on the network expands."

In a statement shared with The Block, Coinbase asserted that its Lightning Network integration has slashed the cost of sending bitcoin globally for its users by a factor of 20 in comparison to the average 2% charged on credit card transactions and a fraction of the $30 incurred in wire transfers.

While the integration will empower users in supported regions to select between Lightning or the Bitcoin base layer for withdrawals and payments, Coinbase has refrained from specifying the specific regions that will enjoy this support at launch. "The Lightning Network Integration is not yet available in all regions. We are rolling out support on a case-by-case basis," stated Bunin.

Collaboration with Lightspark

Coinbase has forged a strategic partnership with Lightspark, a Lightning Network infrastructure firm, to facilitate this integration. Lightspark, led by CEO and co-founder David Marcus, boasts a distinguished legacy in the financial technology industry, including leadership roles at PayPal and Meta, where Marcus spearheaded the Diem stablecoin project.

The selection of Lightspark as Coinbase's integration partner was formally announced on April 3, with Marcus hailing it as another "significant milestone" for Lightning's trajectory.

"Our decision to engage a non-custodial integration partner stems from Lightning's design, which incorporates an optimization component with regard to channel liquidity management and route success rates," Bunin explained to The Block. "It made strategic sense to leverage the expertise of a partner singularly focused on resolving these issues, while Coinbase could prioritize securing our users' assets and enhancing their user experience while employing Lightning."

Commenting on today's rollout, Marcus expressed his enthusiasm for the collaboration with Coinbase: "Partnering with Coinbase to introduce Lightning payments to their customers is a pivotal milestone in our shared objective of delivering practical solutions for Internet payments. Collaborating closely with the Coinbase team has been an exceptional experience, and we are thrilled that hundreds of millions of individuals in hundreds of countries can now execute swift, economical Bitcoin transactions."

No Plans for Coinbase Wallet Integration

Bunin confirmed that there are currently no plans to integrate Lightning into Coinbase Wallet (its non-custodial web3 wallet) or any other Coinbase products or services at this juncture. However, the team will diligently monitor the Lightning Network's growth and its adoption among Coinbase customers to inform potential expansion into products such as Coinbase Wallet or its crypto payments service Coinbase Commerce.

"While we cannot predict the number of users who will utilize Lightning to transmit BTC, we are encouraged by the traction we have observed for Layer 2s in other ecosystems," continued Bunin. Citing Ethereum, he noted that approximately 35% of ETH sends were conducted via Layer 2 protocols such as Coinbase-incubated Base network. "Usage, adoption, and traction of Layer 2s on Bitcoin and Ethereum are fundamentally different, but we generally anticipate Layer 2 usage to increase over time as users seek cheaper and faster transactions."

Genesis of the Integration

In April 2023, Coinbase CEO Brian Armstrong initially hinted at Coinbase's forthcoming support for the Lightning Network. Subsequently, in September 2023, Coinbase affirmed its intention to integrate the Bitcoin Layer 2, with Armstrong emphasizing that bitcoin is "the most critical asset in crypto" and that the exchange was "delighted to contribute our efforts to facilitating faster/cheaper Bitcoin transactions."

Armstrong's remarks culminated a consultation process initiated a month earlier, soliciting feedback on the optimal implementation of Lightning. This process commenced after Armstrong responded to a post from Block CEO Jack Dorsey inquiring, "Why do you perpetually disregard Bitcoin and Lightning? What 'crypto' constitutes a superior money transmission protocol, and why?"

"We are exploring the best approach to incorporate Lightning. It's not trivial, but I believe it's worth pursuing. I am fully supportive of payments taking off in Bitcoin," Armstrong stated at the time. "I'm not sure why you believe we are disregarding Bitcoin — we have onboarded more people to Bitcoin than probably any other company globally. Let's collaborate to build it."

Coinbase Joins the Lightning Network Vanguard

Coinbase joins a growing roster of major crypto exchanges offering Lightning support, including Bitfinex, OKX, Kraken, and Binance. Bitfinex emerged as the first major crypto exchange to embrace Lightning Network support in 2019. OKX followed suit in 2021, while Kraken and Binance completed their integrations in 2022 and July 2023, respectively.

When questioned about Coinbase's extended timeline for integrating the Lightning Network compared to its rivals, Bunin attributed it to a methodical approach involving evaluation of the Layer 2's growth and adoption before implementing support.

"Coinbase's mission is to expand economic freedom globally, and supporting Bitcoin is integral to that endeavor. We examined Lightning support for several years before resolving to add it last year," Bunin explained to The Block. "The primary factors driving our decision were the sustained growth and adoption of Lightning, the increasing maturity of the underlying technology, and our objective to reduce onchain payments to 1 second and 1 cent."

Beyond integrating Lightning support, Coinbase has invested in multiple projects within the Bitcoin ecosystem through its venture arm, including Casa (a self-custodial storage