To prevent liquidity from being dispersed across multiple channels, Bitcoin Lightning wallet Phoenix has introduced splicing, a mechanism that enables a single dynamic channel per user. To better anticipate and manage incoming Lightning payments, users will now have access to a single dynamic channel.
Lightning Network is an overlay network of bidirectional payment channels over the Bitcoin blockchain that facilitates cheap and instant micropayments. It allows users to transact immediately without waiting for the main blockchain to settle their transactions.
By doing this, it solves the problems of slow transaction speeds and high fees that are inherent to Bitcoin’s mainnet. While Lightning is a significant step forward in terms of scalability, it is not infinite; it will approach its limits and require additional feature sets before it can expand any further.
How splicing changes the game for Lightning Network
Instead of having to deal with dispersed liquidity and splitting concerns, as was the case with previous versions of Phoenix, which produced many channels and incurred unpredictable fees thanks to such channels, the new Phoenix handles a single dynamic channel. Splicing changes the playing field by creating a single dynamic channel, eliminating the 1% cost on incoming liquidity, enhancing control and predictability, and introducing trustless swaps.
By splicing, participants in a payment channel can move money from one on-chain output into another on-chain output or from one on-chain output to another independent on-chain output without having to wait for the funds to clear.
This means that, in practice, you don’t have to close your Lightning Network payment channel and open a new one if you want to add or take bitcoin from your channel’s balance. The result is a more engaging Lightning Network.
Splicing allows customers to adjust the amount of their channels, adding or removing money without increasing their exposure to future risk. The mining cost for the underlying on-chain transaction has also replaced the old 1% tax on incoming liquidity. To promote transparency and alignment of incentives between users and the wallet, the price for transmitting Lightning payments has been standardised at 0.4%.
Concerns about hidden costs associated with channel creation are also addressed in this newer version of Phoenix. When a user receives a Lightning payment, they will be told ahead of time if a channel management charge will be applied.