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Ark Protocol: A New Layer 2 for Bitcoin

Ark Protocol is a new Bitcoin L2 that addresses the challenges of making bitcoin transactions on the Lightning Network, including the inbound liquidity requirement.
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By Tasmiha Khan for Trust Machines

Bitcoin scalability has been a problem for a long time. The Bitcoin network can only process a limited number of transactions per second, which can lead to high fees and slow transaction times.

In May 2023, a Bitcoin developer named Burak Keceli unveiled a novel solution called Ark, a layer 2 protocol designed to improve the speed, security, and scalability of Bitcoin transactions. It does this by using a different approach to scaling than other layer 2 solutions like Lightning while Bitcoin remains the base layer.

A New Layer Two Protocol for Bitcoin By Burak Keceli 

Ark's origins stem from Burak Keceli's initial idea to create a Lightning wallet that would address many of the challenges faced by the Lightning Network in January 2023. But as Keceli himself admitted, he soon found that he wasn't simply building a Lightning wallet, but rather a new layer 2 protocol that would serve as a sort of alternative to the Lightning Network. The result was Ark protocol, which is like Lightning in that it scales Bitcoin by transacting off-chain.

But Ark also directly addresses what is known as the "inbound liquidity" problem on Lightning. It refers specifically to users' ability to receive funds on the Bitcoin layer 2, but they can only do so by committing funds and making outbound bitcoin payments.

Instead, Ark protocol relies on intermediaries called Ark Service Providers (ASPs). ASPs serve as liquidity providers, CoinJoin coordinators, and Lightning service providers that create rapid, blinded CoinJoin sessions every five seconds. These sessions are called pools, and they ensure the atomicity of payment schedules. This means that all payments in a pool are either confirmed or canceled together.

Recipients can claim their funds through a txlock condition, which is a type of smart contract that requires the connector outpoint to remain unchanged. This means that the recipient can only claim their funds if the original transaction has not been modified. The use of ASPs and txlock conditions helps to improve the security and privacy of Ark transactions. ASPs help to ensure that payments are atomic, and txlock conditions help to prevent fraud. 

Improving On and Integrating the Lightning Network

One notable advantage of Ark is that it eliminates the need for opening and closing channels, thereby significantly reducing the on-chain footprint. Liquidity constraints are a problem with traditional layer 2 solutions because they require recipients to have an account on the network in order to receive funds. This can be a barrier to entry for people who are not familiar with cryptocurrencies or who do not want to go through the hassle of setting up an account. Ark simplifies the process of receiving payments for recipients, minimizing obstacles related to onboarding and liquidity management. At the same time, it maintains the ability to support micro-transactions and affordable off-chain payments.

ASPs also ensure that Ark can interoperate with the Lightning Network. Ark can help reduce the cost of using the Lightning Network by acting as a confirmation layer. Multiple ASPs can be used to pay Lightning invoices. Payments on Ark are credited every five seconds, allowing users to spend their zero-conf vTXOs immediately without waiting for on-chain confirmations. This means that Ark can be used to create channels on the Lightning Network, and then these channels can be used to conduct transactions without having to go through the Bitcoin blockchain. This can save users money on transaction fees.

Unlike the Lightning Network, Ark employs an alternative scaling approach that enables users to send and receive funds without being constrained by the base chain's limitations on Unspent Transaction Outputs (UTXOs). The Ark protocol utilizes virtual UTXOs (vTXOs), which are short-lived notes that expire after four weeks. When a payment is made using Ark, existing vTXOs are redeemed and new ones are created. This process helps to improve privacy by obscuring the identity of the sender and recipient. 

Additionally, vTXO values are restricted to a range of sats values, which further improves privacy. Users can acquire vTXOs from others or use a process called lifting to lift their on-chain UTXOs off the chain for virtual UTXOs. Lifting is a process that allows users to move their Bitcoin funds to the Ark network without having to go through the onboarding process. This approach also eliminates the liquidity constraints associated with transferring UTXOs to static channels, as seen in the current implementation of the Lightning Network.

Ark also aims to address some of the key issues with using the Lightning Network, such as the need for users to remain online at all times. Ark can be used to settle transactions even if one of the parties is offline. This is because Ark uses a different consensus mechanism than the Lightning Network.

Ark Protocol: A New Addition to Scaling Bitcoin

As the Bitcoin network continues to grow, it will become increasingly important to find ways to improve its scalability and security. Cutting edge innovation in Bitcoin layers offer hope to find a solution to the Bitcoin trilemma of achieving security, scalability and decentralization.

Ark protocol’s use of vTXOs, ASPs and txlock conditions and its interoperability with the Lightning Network is a promising solution for efficient and secure off-chain transactions on the Bitcoin network. Not only that, it only speaks to how essential Bitcoin layers are to ensuring that developers can build on Bitcoin and fight the notion that the world's oldest blockchain exists solely as a payment network or store of value.