Counterparty, the technology for decentralized financial tools on the Bitcoin blockchain, and Storj, the first decentralized, end-to-end encrypted cloud storage that utilizes blockchain technology, have teamed up and combined resources to develop payment channel technology for use on the Counterparty network.

Cointelegraph spoke to Trevor Altpeter and Matt Young, directors of the Counterparty Foundation, about the partnership with Storj, micropayments, and the Lightning Network.

Storj’s micropayment streaming of SJCX

Starting in the third quarter of this year, Storj’s micropayment streaming of SJCX (Storjcoin X), will be beta tested for those storing data on the Storj network.

“Payment channels allow for instant, ‘streaming’ payments of SJCX, which is a Counterparty token, in exchange for storage space on our network,” Shawn Wilkinson, CEO of Storj, recently said in a press release.

Codenamed picopayments, Storj’s original proof-of-concept project was led by Storj developer Fabian Barkhau. Around a month ago, Barkhau and Counterparty lead developer, Ruben de Vries, started collaborating to make the code ready for addition to counterparty-lib, the Counterparty reference client.

“We’re excited about this development and appreciate the initiative Storj took here,” said Ruben de Vries, in a press release.

He notes:

“This is a huge step forward that will truly allow for rapid, almost frictionless Counterparty token payments, as well as eventual use of Counterparty tokens on the Lightning Network.”

Distributed object storage

Speaking to Cointelegraph, Matt Young, director of the Counterparty Foundation, said that it was a privilege to have one of the highest profile projects on Counterparty contribute to extending the functionality of the protocol, working together to develop the payments channel feature.

Young explains:

“It’s a win win and truly everyone benefits: Storj, Storj users, the Counterparty protocol and its users. We can’t say enough about Shawn and Fabian and we’re looking forward to collaborating with other projects.”

This partnership between Counterparty and Storj will be highly visible given Storj’s partnership with Microsoft’s Blockchain-as-a-Service (BaaS) earlier this year.

In a recent Storj blog post companies such as Coca-Cola, Cox Enterprises, The Weather Channel, and Capgemini, are noticing the impact of distributed object storage and are exploring the benefits that Storj can produce in their businesses.

In the blog post, Ethereum founder, Vitalik Buterin said:

“Distributed file storage systems like Storj have the potential to eliminate high mark-up costs and market inefficiencies, and provide a much higher level of privacy, reliability, and quality of service than we see today.”

Speaking to Cointelegraph, Trevor Altpeter, director of the Counterparty Foundation summed it up by saying that “it was a great match for both parties and the Counterparty community at large.”

Unidirectional and bidirectional micropayments and the Lightning Network

Previously, each Counterparty transaction was undertaken through the Bitcoin blockchain. However, while this was a secure process each transaction was impacted by Bitcoin’s ten-minute block times and high transaction fees.

According to Counterparty, payment channels allow two users of Bitcoin to pay between them in a process time that is much quicker than Bitcoin’s 10-minute block times.

Young explained to Cointelegraph that discussions are circulating regarding what will happen to Bitcoin’s utility for small transactions as the block reward continues to decrease and the price per transaction increases.

Young notes:

“Payment channels and the Lightning Network are helping to solve that problem by allowing a number of transactions to be bundled together and paying a much smaller fee per transaction. We’re very excited that Storj was able to implement this functionality on Counterparty and we look forward to working with them on other efforts in the future.”

In its current state, the technology facilitates unidirectional payment channels, where Storj and other Counterparty users can stream payments in SJCX or other assets to users.

With a unidirectional micropayment channel, an individual can utilize this channel to pay for goods or a service as long as that channel remains open between both parties thus removing the worry of double spends, fraud, and excessive transaction fees.

However, this form of payment channel is limited due to the fact that while Peter can pay Bob several off-chain transactions, Bob can’t pay Peter through the same channel.

This is where the upcoming Lightning Network comes in with the proposed bidirectional payment channel by Joseph Poon and Tadge Dryja.

Even though it’s still under development, the Lightning Network aims to provide a secure network that delivers off-chain payments between two parties.

The most anticipated technological invention

Since the introduction of the payment layer by Poon and Dryja, the Lightning Network has quickly become the most anticipated technological invention to be put into place on top of Bitcoin.

Its aim is to preserve Bitcoin’s decentralized qualities while delivering a secure transaction network minus Bitcoin’s cost, speed, double spend issues, and scalability limitations.

The use of micropayments is also a crucial first step in Counterparty’s long-time stated goal of enabling bidirectional micropayments allowing two parties to swap Counterparty assets in return for Bitcoin or other Counterparty assets.

Just like the unidirectional micropayments, the bidirectional payment channel won’t be subject to Bitcoin’s ten-minute block time.

Some potential uses for micropayments include buying in-game items with Counterparty-based games such as Spells of Genesis or SaruTobi, donations to charities, rewarding users for contributing content to a blog or even buying more storage with Storj.

Of course, while there are some shortcomings of the bidirectional payment channel such as having a limit on the number of transactions individuals can make with a microchannel, Altpeter says that “it will be a huge advance that will enable rapid, cheap, off-chain transactions for numerous uses of Counterparty.”