Payment-Focused L2 Network Enabling Lightning-Fast Microtransactions

[GENERAL] Name and surname of main applicant

[GENERAL] Are you delivering this project as an individual or as an entity (whether formally incorporated or not)

[GENERAL] Please specify how many months you expect your project to last (from 2-12 months)

[GENERAL] Please indicate if your proposal has been auto-translated into English from another language

[GENERAL] Summarize your solution to the problem (200-character limit including spaces)

Our proposed solution is a layer-2 lightning network built on top of Cardano that will bypass on-chain protocol barriers and enable seamless, lightning fast transactions with ADA and CNTs.

[GENERAL] Does your project have any dependencies on other organizations, technical or otherwise?

[GENERAL] If YES, please describe what the dependency is and why you believe it is essential for your project’s delivery. If NO, please write “No dependencies.”

No dependencies.

[GENERAL] Will your project’s output/s be fully open source?

[GENERAL] Please provide here more information on the open source status of your project outputs

The project will be open source under MIT License. This will allow anyone to do whatever they wish with the original code, as long as the original copyright and license notice is included either in the distributed source code or software.

[METADATA] SDG rating

SDG rating:

SDG Goals

9 - Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation

17 - Strengthen the means of implementation and revitalize the Global Partnership for Sustainable Development

SDG Subgoals

17.19 - By 2030, build on existing initiatives to develop measurements of progress on sustainable development that complement gross domestic product, and support statistical capacity-building in developing countries

17.3 - Mobilize additional financial resources for developing countries from multiple sources

9.1 - Develop quality, reliable, sustainable and resilient infrastructure, including regional and transborder infrastructure, to support economic development and human well-being, with a focus on affordable and equitable access for all

9.3 - Increase the access of small-scale industrial and other enterprises, in particular in developing countries, to financial services, including affordable credit, and their integration into value chains and markets

9.b - Support domestic technology development, research and innovation in developing countries, including by ensuring a conducive policy environment for, inter alia, industrial diversification and value addition to commodities

Key Performance Indicator (KPI)

9.1.1 - Proportion of the rural population who live within 2 km of an all-season road

9.1.2 - Passenger and freight volumes, by mode of transport

9.3.1 - Proportion of small-scale industries in total industry value added

9.3.2 - Proportion of small-scale industries with a loan or line of credit

9.b.1 - Proportion of medium and high-tech industry value added in total value added

17.3.1 - Foreign direct investment, official development assistance and South-South cooperation as a proportion of gross national income

17.3.2 - Volume of remittances (in United States dollars) as a proportion of total GDP

17.19.1 - Dollar value of all resources made available to strengthen statistical capacity in developing countries

17.19.2 - Proportion of countries that (a) have conducted at least one population and housing census in the last 10 years; and (b) have achieved 100 per cent birth registration and 80 per cent death registration

[SOLUTION] Please describe your proposed solution

Introduction 

High throughput and the ability to handle microtransactions efficiently are critical requirements for modern payment systems. Cardano is known for its robust security and scalability features and our Lightning solution will further enhance transaction capabilities.

This proposal outlines the basic idea of the Lightning Network on Cardano akin to bitcoin's lightning network, which aims to facilitate off-chain, high-speed transactions. Additionally, it addresses the challenges posed by the minimal Ada requirement on Cardano, which, while essential for network security but presents significant hurdles for high frequency and micro transactions.

Through this proposal we aim to solidify the technical architecture through technical research and discussion and propose a complete detailed architecture to deploy this L2 with a low fidelity prototype.

Overview of the Lightning Network on Cardano 

The Lightning Network on Cardano is a layer-2 solution designed to enable users to perform transactions at exceptionally high speeds with minimal fees. This is achieved by allowing transactions to occur off the main Cardano blockchain (layer-1), thus reducing the load on the network and enabling higher transactions per second (TPS).

Key Features:

• High Transactions Per Second (TPS): By processing transactions off-chain, the Lightning Network can handle a vastly higher number of transactions, making it suitable for high frequency and microtransactions.

• Low Transaction Fees: Transactions on the Lightning Network incur significantly lower fees, making microtransactions economically feasible.

• Scalability: As a layer-2 solution, it scales independently from the main blockchain, ensuring that increased usage does not lead to congestion.

• Interoperability with dApps: The Lightning Network can be easily integrated with existing and new dApps on Cardano, enhancing their performance and capabilities.

• Minimal Ada Requirement Mitigation: The design includes strategies to manage the minimal Ada requirement, ensuring that even microtransactions remain viable and secure as it is not happening on the main protocol without unnecessary overhead.

• Transparency: All transactions are transparent as only locked ADA or CNTs in the contract can be circulated on the lightning network.

Architecture:

Components

• Smart Contract (SC): A Cardano smart contract is used to lock tokens on the main blockchain. This contract acts as the entry and exit point to the Lightning Network.
• Lightning Nodes: Nodes on the Lightning Network that participate in transaction verification and routing.
• Payment Channels: Two-way communication channels between nodes that allow for bidirectional token transfers.

Workflow 

• Token Deposit and Locking:
• Users deposit their ADA or other tokens into the smart contract on the main Cardano blockchain.
• The smart contract locks these tokens to prevent double-spending, while carefully managing the minimal Ada required to secure these entries.

• Token Minting on Lightning Network:
• Once the tokens are locked, an equivalent amount of "Lightning tokens" are minted on the Lightning Network.
• These Lightning tokens can be used for transactions within the network, sidestepping the minimal Ada requirements of the main blockchain.

• Transaction Processing on Lightning Network:
• Users perform transactions with Lightning tokens. These transactions are nearly instantaneous and are processed by Lightning Nodes.
• The transaction fees are minimal, and the nodes ensure secure and rapid processing, optimizing the use of Ada for security without burdening microtransactions.

• Settlement:
• When users are ready to exit the Lightning Network, they close their payment channels.
• The final state of these channels is settled on the main Cardano blockchain.
• The corresponding amount of Lightning tokens are burned, and the original tokens are unlocked from the smart contract and returned to the users, with the minimal Ada requirements handled efficiently.

Integration with dApps 

• Microtransaction Services: Services that require frequent and small transactions can benefit from the low fees and high speed, while the minimal Ada requirements are efficiently managed to support even the smallest transactions.
• Gaming and NFT Platforms: Improved transaction speed can enhance user experience in gaming and NFT marketplaces, where the minimal Ada requirement is no longer a bottleneck.
• and many more...

Conclusion

The introduction of a Lightning Network on Cardano represents a significant leap forward in terms of payment capabilities, enabling high-speed, low-cost transactions that can cater to a wide range of applications. This proposal lays the groundwork for a scalable, secure, and efficient off-chain solution that will enhance the capabilities of the Cardano ecosystem and its growing number of decentralized applications.

[IMPACT] Please define the positive impact your project will have on the wider Cardano community

The introduction of the Lightning Network on Cardano is expected to bring about a transformative change in the way microtransactions and high-frequency transactions are conducted on the platform. This proposal is designed not just to optimize transaction speeds and costs but also to broaden the usability and appeal of Cardano, fostering a more vibrant and diverse ecosystem.

Value to the Cardano Community

• Enhanced Network Efficiency and Capacity: By offloading the bulk of transactions from the main Cardano blockchain to the Lightning Network, we significantly decrease the load on the main chain, leading to improved overall network performance and scalability.

• Increased Adoption of Cardano dApps: With the Lightning Network enabling high-speed and low-cost transactions, developers and users will be incentivized to build and use dApps on Cardano.

• Facilitation of Microtransactions: By addressing the minimal Ada requirement and optimizing transaction costs, the Lightning Network makes it feasible for a new range of applications to emerge, such as microtransaction-driven services.

• Empowering Community Involvement: The enhancement of the Cardano network with the Lightning Network can lead to more community-driven initiatives and collaboration.

Conceptual Approach to Measuring Impact

Since this is a proposal to conceptualize and explore the potential of the Lightning Network on Cardano, traditional quantitative and qualitative metrics may not be fully applicable at this stage. However, the impact can be envisioned and discussed in the following conceptual terms:

1. Theoretical Improvements in Transaction Metrics: Discuss potential increases in transactions per second (TPS) and reductions in transaction fees as theoretical benchmarks that the Lightning Network aims to achieve.
2. Exploration of User and Developer Engagement: Conceptualize how the Lightning Network could change the way developers and users interact with the Cardano ecosystem, potentially leading to increased adoption and innovation.
3. Potential Enhancements to dApp Performance: Identify how dApps could theoretically benefit from the Lightning Network, including scenarios where transaction speed and cost improvements could transform user experiences and operational efficiency.
4. Community Feedback and Involvement: Plan to engage with the Cardano community to gather their insights, expectations, and suggestions regarding the Lightning Network. This engagement will help refine the proposal and ensure it aligns with community needs and values.

Sharing Conceptual Outputs and Opportunities

To maximize the impact of this conceptual proposal and foster community involvement in refining and realizing the Lightning Network on Cardano, the following approaches will be adopted:

1. Publishing Conceptual Documents and Discussions: Share the ideas and frameworks proposed here through whitepapers, blog posts, and discussion forums. This will open up the conceptual proposals to broader community input and collaboration.
2. Engagement with Existing and Potential Developers: Reach out to developers already working within the Cardano ecosystem as well as those in related fields to explore their interest and gather their ideas on how the Lightning Network could transform their projects and the ecosystem at large.
3. Preparation for Future Development Phases: Lay the groundwork for transitioning from conceptualization to development by preparing strategies for pilot projects, prototypes, and initial implementations. This will ensure that the project maintains momentum and moves towards tangible outcomes.

[CAPABILITY & FEASIBILITY] What is your capability to deliver your project with high levels of trust and accountability? How do you intend to validate if your approach is feasible?

Capability to Deliver

Our team is uniquely equipped to deliver this project with high levels of trust and accountability, thanks to a blend of direct experience and technical expertise within the Cardano ecosystem:

• Proven Track Record: Our team has been building products and solutions for Cardano under Lovelace Club brand since past two years that required meticulous planning and robust technical implementation, recognized for their innovation and impact.

• Development Team: Our developers have extensive experience in blockchain development, particularly on the Cardano platform. They have contributed to successful Cardano-based projects and are proficient in cardano dApp development.

• Established Brand Presence: We have built a recognized brand within the Cardano community, the Lovelace Club, where we successfully ran an on-chain randomized lottery platform. This experience highlights our capability to manage and execute blockchain-based projects effectively.

• Expertise and Experience: Our team possesses extensive experience in blockchain development and cryptography, providing us with a profound understanding of the complexities involved. We have successfully developed several products and brands within the Cardano ecosystem, including:
• An on-chain randomized lottery protocol (https://alpha.lottery.lovelaceclub.com/),
• A staking protocol (https://staking.lovelaceclub.com),
• An on-chain communication platform (https://v1.adaconnect.io).

With a collective experience of over 20 years in the blockchain domain, our team is well-equipped with the necessary expertise to develop and deliver this project. This blend of experience and proven success in the Cardano ecosystem ensures that we are prepared to bring the Lightning Network concept to fruition, enhancing the Cardano blockchain's capabilities and community engagement.

Validating Feasibility

To ensure our approach is feasible and to refine our project concept, we will:

• Concept Testing: Initially, we will develop a low-fidelity prototype to test the core concepts and gather early feedback from a small group of ADA holders and startups.

• Community Feedback: We will engage with the wider Cardano community through forums and interactive sessions to validate our approach and adapt based on community input.

• Iterative Development: By adopting an agile methodology, we will iteratively develop and enhance the prototype, ensuring each stage is aligned with user needs and project goals.

Trust and Accountability in Fund Management

We are committed to managing funds with transparency and responsibility. Here are the key steps and processes we will implement:

• Transparent Reporting: We will provide regular, detailed reports on fund allocation and project progress, available to all stakeholders through our website and community forums.

• Stakeholder Engagement: By maintaining open lines of communication and involving stakeholders like founders and developers, we build trust and ensure that the project remains aligned with the community’s interests and expectations.

This comprehensive capability and robust track record position us to deliver a transformative Lightning Network on Cardano, driving forward the blockchain's evolution and expanding its use cases for a global audience.

[PROJECT MILESTONES] What are the key milestones you need to achieve in order to complete your project successfully?

Milestone 1: Full Conceptual Framework Document

Duration: 1 Month

A: Milestone Outputs

• A comprehensive conceptual framework document that will:
• Analyze stakeholders (ADA holders, Developers, Projects, Cardano community members) and their roles and benefits within the Lightning Network context.
• Detail the operational, economic, and strategic aspects of the Lightning Network, including node operations, payment channels, and reward mechanisms.
• Assess the expected outcomes, such as potential increases in transactions per second (TPS), reduction in fees, and improvements in scalability and user experience.

B: Acceptance Criteria

• The document will provide a clear and thorough analysis with well-defined sections and a logical flow.
• Stakeholder roles and benefits within the Lightning Network will be clearly identified and explained.
• Operational procedures, including the setup and use of payment channels and Lightning Nodes, will be detailed step by step.

C: Evidence of Milestone Completion

• A finalized conceptual framework document.
• A video presentation explaining each aspect of the documented framework.

Milestone 2: Full Technical Framework

Duration: 1 Month (Following Milestone 1)

A: Milestone Outputs

• A comprehensive technical framework document that will:
• Include a detailed analysis of the technical requirements and considerations for implementing the Lightning Network on Cardano.
• Outline the architecture and data flow of the solution, showing how transactions on the Lightning Network are processed in parallel to the main blockchain.
• Provide technical specifications for the smart contracts, Lightning Nodes, and payment channels, including how they interact and how security and performance are ensured.

B: Acceptance Criteria

• The technical framework will cover all aspects necessary for the robust implementation of the Lightning Network.
• The architecture and data flow descriptions will clearly show how the system operates efficiently and how it interfaces with the main Cardano blockchain.
• Technical specifications will be precise and detailed, enabling developers and engineers to follow them in subsequent development phases.

C: Evidence of Milestone Completion

• A completed technical framework document.
• A technical presentation showcasing the whole technical framework.

Milestone 3: Low-Fidelity Prototype

Duration: 1 Month (Following Milestone 2)

A: Milestone Outputs

• A low-fidelity prototype of the Lightning Network on the Cardano blockchain will:
• Demonstrate basic functionality for ADA holders to initiate and close payment channels.

B: Acceptance Criteria

• The prototype will demonstrate key functionalities of the Lightning Network with a user-friendly interface, even at low fidelity.

C: Evidence of Milestone Completion

• A recorded demonstration and walkthrough of the prototype, shared with the Cardano community and stakeholders.

Final Milestone: Project Ending Report

Duration: 1 Month (Following Milestone 2)

A: Milestone Outputs

• A comprehensive project ending report will:
• Provide an overview of the prototype’s design and functionalities.
• Share insights and findings from the development process, including any challenges faced and how they were addressed.
• Outline the next steps for scaling the prototype to a high-fidelity version, including integration plans with existing dApps.

B: Acceptance Criteria

• The project ending report will detail the development process, initial user feedback, and a clear plan for the next development phase, including potential improvements.

C: Evidence of Milestone Completion

• The project ending report, complete with development insights, user feedback, and a detailed roadmap for future development.

[RESOURCES] Who is in the project team and what are their roles?

Adnan Khan - Tech Lead, Lovelace Club | Product Owner, SyncAI

Adnan is a seasoned web3 professional with 5 years experience in building MVPs, product development, and achieving scalability for early-stage startups. He is graduated with a bachelors in Data Science and Machine Learning. His expertise includes data analytics and web3 development, particularly on-chain analytics. Adnan has served as a research analyst at GravityX Capital and collaborated with top web3 projects like dYdX, Polygon, Frontier, and Bullieverse. He is also a three-time Catalyst winner with a track record of successful proposals.

Uzair Anwar - Growth and Operations Lead, Lovelace Club

Uzair is driving Lovelace Club's product and business growth since it's inception He excels in strategic business development, operational efficiency, and leveraging DeFi and NFT landscapes for growth.

Lovelace Club Our team has over 20 years of collective experience in blockchain development and cryptography. We have successfully developed products within the Cardano ecosystem, including:

• An on-chain randomized lottery protocol (https://alpha.lottery.lovelaceclub.com/)
• A staking protocol (https://staking.lovelaceclub.com)
• An on-chain communication platform (https://v1.adaconnect.io/)

Our expertise ensures we are well-prepared to develop and deliver innovative solutions that enhance the Cardano blockchain's capabilities and community engagement.

[BUDGET & COSTS] Please provide a cost breakdown of the proposed work and resources

Milestone 1

Total Duration: 30 Days

• Senior Cardano Developer: 20000 ADA
• Cardano Solution Architect: 5000 ADA

Total: 25000 ADA

Milestone 2

Total Duration: 30 Days

• Senior Cardano Developer: 20000 ADA
• Cardano Solution Architect: 5000 ADA

Total: 25000 ADA

Milestone 3

Total Duration: 30 Days

• Senior Cardano Developer : 10000 ADA

Total: 10000 ADA

Final Milestone: Launch and Reporting

Total Duration: 20 Days

• Senior Cardano Developer : 10000 ADA

Total: 10000 ADA

[VALUE FOR MONEY] How does the cost of the project represent value for money for the Cardano ecosystem?

The cost of the project, set at 70,000 ADA, represents significant value for money for the Cardano ecosystem, taking into account the following factors:

Expertise in Cardano: The project necessitates skilled professionals with specialized knowledge of the Cardano blockchain & ecosystem.

These skills are in high demand and command premium rates. The budgeted costs are aligned with industry standards for such expertise.

• Efficient Resource Allocation: The proposed costs for developing and deploying the L2 Lightning Network on the Cardano blockchain are carefully evaluated to ensure efficient resource allocation. By leveraging existing infrastructure and expertise within the Cardano community, the project minimizes unnecessary expenditures while maximizing the impact of the investment.

• Community-driven Development: The costs are justified by the extensive user feedback and low-fidelity prototype development process. This ensures that resources are allocated towards building a solution that resonates with the needs and preferences of the Cardano community, maximizing the likelihood of adoption and success.

• Feasibility Assessment: The costs are determined based on a thorough feasibility assessment, taking into account factors such as development complexity, regulatory considerations, and market dynamics. This rigorous evaluation process minimizes the risk of budget overruns and ensures that the project remains financially viable throughout its lifecycle.

• Value Proposition: The costs of the proposal are justified by the potential value it brings to the Cardano ecosystem. By democratizing access to venture capital and fostering innovation within the community, the project has the potential to unlock new opportunities for growth and development, ultimately delivering significant long-term value for stakeholders.

In summary, the costs associated with the proposal are justified by the efficient allocation of resources, community-driven development approach, thorough feasibility assessment, and the potential value proposition for the Cardano ecosystem.