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Why Exchanges Need Bitcoin Lightning Network Deposits and Withdrawals

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This last year has been heartbreaking for many people who trusted 3rd party custodians with their Bitcoin.

It is not a new demand from Bitcoiners that exchanges add lightning deposits and withdrawals. 

Just like in the legacy financial system, milliseconds can matter.

Without focusing on all aspects of what has unfolded over the last year among these crypto collapses I want to focus on (x) critical things:

  1. There is now a movement and demand for Proof of Reserves (POR)
  2. Consumers want the option to move their funds as quickly as possible so that they can react to market shifts as they see fit.

While POR does not address the liabilities an exchange has or its solvency, it is one step closer to a level of transparency that exchange users and traders are demanding.

The incentive for exchanges to run a Lightning Node

I have to give it to companies like River and Cash App which built Lightning infrastructure proactively and propriety systems of managing users’ capital. There is something special and valuable about those who can see the forest through the trees. 

Here we are in 2022 where users who use other exchanges are inhibited from withdrawing their assets immediately. While SegWit has enabled batching of transactions it still does not give users full autonomy to withdraw their funds at the rate at which users truly need when there is an industry-wide shakeup.

Exchanges running their own lightning node create a better user experience for customers. Exchanges also now have an economic incentive for them to deploy their proof of reserves into a lightning node which can enable the exchange to earn yield by becoming a reliable node within the Lightning Network.

While user experience on exchanges has been focused on having tight spreads and features that allow entering and exiting positions, I am willing to bet that users are going to get louder about having the capability to take custody of their funds in a quicker manner.

Proactive focus on user experience

I completely understand that there is far more profit through bringing on more altcoins, and building new trading features that enable more and faster trade execution, but one must consider the end goal.

Are exchanges focused on building purely a traders platform focused on keeping capital on the exchange as long as possible to maximize revenue generation? Or is the exchange building for a future-proof business model which generates profits but also is focused on longevity?

We all know the saying “when it rains it pours”, and when events unfold like we have seen this year, you want to be on the right side of history.

How Voltage helps exchanges integrate Lightning Network

We are focused exclusively on Bitcoin and have created a developer focused solution which allows any exchange to bring Lightning infrastructure the way they need to their customer’s user experience. 

Engineering teams have control and autonomy to build exactly what they demand with the highest security and privacy standards required. 

Don’t wait for the next industry-wide issue. Reach out to our Business Development team at sales@voltage.cloud

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