Lightning Labs Explains How Their Taro Protocol Will ‘Bitcoinize the Dollar’


Earlier this week, Ryan Gentry, Business Development Lead at Lightning Labs, announced “Taro, a new Taproot-powered protocol for issuing assets on the bitcoin blockchain that can be transferred over the Lightning Network for instant, high volume, low fee transactions.”

Lightning Labs, which was founded in 2016 by Elizabeth Stark (CEO) and Olaoluwa Osuntokun (CTO), is a company that is trying to bring Bitcoin to the masses by supporting the growth of the Lightning Network. You could say that it is building “the next generation Lightning-based financial infrastructure.” It currently offers the following four products:

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  • Pool, which “connects users who need access to bitcoin liquidity to those who have capital to deploy on the Lightning Network.”
  • Loop, which is “intended to help users, businesses, and routing node operators keep their channels open indefinitely by using non-custodial Bitcoin contracts to keep the liquidity flowing.”
  • Lightning Network Daemon, which is their “own implementation of a Lightning Network Node provides superior reliability, interoperability and security for global-scale financial applications.”
  • Neutrino, which is “a light client specification that allows non-custodial Lightning wallets to verify transactions privately, trustlessly, and a full sync to the Bitcoin blockchain.”

Gentry, who has been at Lightning Labs since July 2020, said that the Taro announcement “marks a big shift to a multi-asset Lightning Network with the potential for the world’s currencies to route through bitcoin liquidity on the network.” He went on to say that Taro “taps into the security and stability of the bitcoin network and the speed, scalability, and low fees of Lightning.”

On the same day, Lightning Labs CEO Elizabeth Stark published a blog post in which she announced “$70M in Series B funding by investors including Valor, Baillie Gifford, Goldcrest, Kingsway, Stillmark, Brevan Howard, NYDIG, M13, Craft, and more.”

In her blog post, Stark stated by talking about the motivation for the Taro project:

One of our core tenets at Lightning Labs is solving real problems for real people, and we’ve talked to myriad community members in emerging markets who’ve told us what a big difference stablecoins on bitcoin and Lightning would make in their economies. Taro makes sending assets like these possible using the bitcoin network with the instant, high volume, low fee nature of Lightning.

This technology can and will power a whole host of opportunities in emerging markets. Instead of a bank account, people only need access to a mobile phone to tap into the native monetary network of the internet. And we can enable them to leapfrog the legacy financial system for something that is far superior — open, global, and interoperable.

She then explained that using Taro, developers would be “able to issue assets on the bitcoin blockchain, and then move them onto Lightning for speed and scalability, making use of BTC liquidity to ensure interoperability between assets.” Lightning transactions on Taro “route through bitcoin itself, and the assets are only visible at the edges.”

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She also talked about hw Taro will help Bitcoin:

Taro helps bitcoin in numerous ways, including onboarding people to bitcoin through fiat where they can easily swap between assets. This is particularly useful in a high inflation environment, as many people around the world live in economies where their currencies are continually losing value. Thus, Taro helps facilitate fiat to bitcoin rails.

Further, as Taro uses bitcoin liquidity to route assets issued on the protocol, there will be greater demand for bitcoin on the Lightning Network. As a result, bitcoin will route dollars, fiat, and everything in between. This is how we bitcoinize the dollar.
Assets like stablecoins will route through the bitcoin monetary network using Lightning. This new protocol cements bitcoin in its place as the internet’s native digital money and protocol for value transfer.

Going back to Gentry’s blog post, he said that Taro “expands the reach of Lightning Network as a whole, bringing more users to the network who will drive more volume and liquidity in bitcoin, and allowing people to easily transfer fiat for bitcoin in their app,” and pointed out that “more network volume means more routing fees for node operators, who will see the benefits of a multi-asset Lightning Network without needing to support any additional assets.”

Gentry says Lightning Labs sees Taro as “an important step in bitcoinizing the dollar, getting the best of both worlds by 1) issuing assets like stablecoins on the most decentralized and secure blockchain, bitcoin and 2) allowing users to transact on the fastest global payments network with the lowest fees, Lightning.”

According to him, Taro “relies on Taproot, bitcoin’s most recent upgrade, for a new tree structure that allows developers to embed arbitrary asset metadata within an existing output,” and it “uses Schnorr signatures for improved simplicity and scalability, and, importantly, works with multi-hop transactions over Lightning.” This is why they have released “a series of Taro Bitcoin Improvement Proposals (BIPs) for feedback and comment from the developer community, as it is an open protocol for the community to adopt.”

Disclaimer

The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading cryptoassets comes with a risk of financial loss.

Image Credit

Featured Image by “FelixMittermeier” via Pixabay


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