A new proposal could open up the possibility of integrating discrete ledger contracts (DLCs) into Bitcoin’s micropayment network, the Lightning Network.
The proposal of creating DLC on the Lightning network was made this November 5 by the programmer Thibaut Le Guilly, current technical leader of the CryptoGarage company, within the DLC-dev mailing list. “I’ve been doing research lately on integrating DLC with the Lightning Network,” he commented. “In this post I will try to summarize the current possibilities, what each one requires and what are its pros and cons.”
The DLCs were created to facilitate ua way to operate complex transactions within Bitcoin using information external to the blockchain through the oracles. On these, a desktop application was recently launched that allows the creation of DLC oracles in Bitcoin, as reported by CriptoNoticias. .
Why would we want to do off-chain DLCs when they work so well on-chain? Of course, the first answer is that doing so eliminates some interactions with the blockchain and thus may be more profitable (under certain conditions).
Thibaut Le Guilly Technical leader of CryptoGarage.
For Thibaut, among the different proposals, there are challenges to face such as: do not modify the protocol so much network original, as well as not increasing the consumption of computational power required to run a DLC on the Lightning network.
One of the proposals is based on using an implementation known as ANYPREVOUT, which allows you to create transactions in Bitcoin without the need to enter an expense of UTXO from the previous transaction. According to Thibaut, this would fix the existing problem regarding using DLC in a pay channel, where basically a new DLC contract has to be created every time the channel commit transaction changes state. With ANYPREVOUT you save this step.
However, this proposal, at least in the short term, does not fall within the possibilities. While ANYPREVOUT was already proposed for Bitcoin in the BIP 118, has not yet gone through blanket approval to be implemented in the protocol.
For now, viewing the DLCs within the Lightning network is just a proposition. Thibout, hope to keep picking feedback from part of the rest of developers to get an implementation carried out.
Bitcoin, Lightning and DeFi, a possibility
The current DLCs in no way match the DeFi ecosystem that exists on Ethereum due to the versatility offered by smart contracts on this network. However, bringing DLC to the Lightning network could create a pseudo DeFi ecosystem in Bitcoin.
DLCs currently allow you to execute contracts on future bitcoin prices. Of which the price is quoted through different oracles. This allows to create a certain ecosystem of financial instruments directly on Bitcoin.
Now, in a hypothetical scenario where DeFi in Bitcoin running in the micropayment network, one could talk about using financial instruments in the field of cryptocurrencies basically without commissions. On the other hand, in Ethereum, due to the saturation that the network is experiencing, platforms have been looking for cheaper alternatives, migrating to second layer solutions. In this way, a DeFi on Bitcoin and Lightning would be a staunch competitor to Ethereum.