Bitcoin still has a future as digital cash "Jack Dorsey bet"

A proposal to speed up bitcoin's transactions has received a boost from Jack Dorsey. The Twitter and Square founder is among the new investors in Lightning Labs, a startup that today announced it raised $2.5 million and released a beta version of its technology.

Dorsey has increased his involvement in the cryptocurrency world in recent months, and he has been reaping the benefits. In November, Square announced that it would let users buy and sell bitcoin on its Cash app. Square's stock price promptly soared—although the price of bitcoin hasn't fared as well. This is Dorsey's first investment in a cryptocurrency company, according to data provider Crunchbase.

Dorsey's investment, which he made in a personal capacity, goes to the heart of a debate that has raged in the bitcoin world for years. One camp wants bitcoin to retain many of its current features, making it something like digital gold. The downside is that bitcoin is only capable of only a handful of transactions a second, which makes it a pretty poor method of payment. This is why another camp wants bitcoin to lift its "block size," allowing it to immediately process many more transactions.

Things came to a head last year as bitcoin transaction fees skyrocketed to nearly $50 per transaction at its peak. Fees have come down significantly since then, thanks to a partial fix called "Segregated Witness." Even that didn't stop the creation of a bitcoin offshoot called "bitcoin cash" in August. Bitcoin cash offers its users a much higher block-size limit.

Lightning Labs is developing a technology that could strike a compromise between the two camps. It's working on something called the Lightning Network, which would be an additional layer of transactions that sit atop the bitcoin network. The system would preserve bitcoin's gold-like features by leaving the block-size limit untouched, but would simultaneously enable a larger volume of payments to take place.

The Lightning Network is an open-source protocol, although much of its development is driven by Lightning Labs. The firm writes a piece of software called the Lightning Network Daemon that lets developers interact with the protocol. The firm says the latest software release has been widely tested for more than year and can now be used on real bitcoin or litecoin transactions instead of a test network where users have been experimenting so far. Still, it recommends against sending large amounts of cryptocurrency with its software for now.