Lykke, the Swiss-based global marketplace powered by blockchain technology, made history today by integrating a first-of-its-kind offchain settlement capability into the Lykke Exchange trading platform. Offchain settlement is based on approaches introduced by Payment Channels and Lightning Network technologies.
With offchain settlement, Lykke users can complete trades off the Bitcoin Blockchain, which substantially reduces settlement time and fees.
Offchain settlement works by opening a bidirectional payment channel between two parties: the client and the exchange. When both parties agree to the terms of a new trade, their agreements are updated off the Blockchain. The modification of the agreement stays off the Blockchain until both parties agree to continue.
The Lykke Exchange maintains the security of the payment channel by temporarily freezing the funds of both parties and getting signed commitments from both. Broadcasting a commitment on the Blockchain, which may be done at any time, unfreezes these funds. At no time does Lykke take possession of the funds. But because the Segregated Witness improvement has not yet been adopted by the Bitcoin network, Lykke is assumed to have trust when the channel is created.
Richard Olsen, Lykke founder and CEO said:
“The Bitcoin Blockchain is built to process about seven transactions per second. That translates to a settlement time of about 10 to 30 minutes per trade. But with Lykke’s new offchain settlement capability, trades are settled almost instantaneously.”
“Going offchain is a game-changer and not just for Lykke. This new approach to the technology helps to make markets more responsive. Imagine trading currencies with all the security safeguards of the Blockchain but as quickly as it takes to make a withdrawal from an ATM.”
Offchain settlement is currently available in the Lykke Wallet mobile app for iOS and Android devices. Additional offchain settlement capabilities are planned for the coming months, including Ethereum offchain settlement, better ways to monitor commitment transactions and tools for broadcasting them, plus complete integration into Lykke Blockchain Explorer.