(SAN FRANCISCO) – The Lightning Network is a decentralized system of payment channels which allows fast and cheap transactions to take place. It does this by pushing most of the transactions off-chain, meaning that only one transaction needs to be settled on the blockchain when it’s time for the trade to end. This means that you can make millions of trades without having any impact on Bitcoin’s scalability. The Lightning Network was first proposed in 2016 by Joseph Poon and Thaddeus Dryja but has been in development since 2015.
The Lightning Network is a way to process transactions for Bitcoin, much like the network of banks that allow you to withdraw money from an ATM. Transactions are occurring off-chain and only periodically recorded on the blockchain. The goal is to speed up transaction times and reduce fees. It’s also designed as a safety measure against potential issues with Bitcoin’s block size limit. I put together this post to give you some background information about this technology so you can stay informed about how it might affect your bitcoin holdings.
The Lightning Network (LN) is a protocol layer built on top of the Bitcoin Blockchain which enables instant payments across participants who have established payment channels between themselves without requiring any intermediaries or trusted third parties. This second-layer scaling solution for Bitcoin has many advantages: low fees, near-instant transactions, and unlimited scalability. But there are disadvantages too, Lightning is not as fast or reliable as other technologies out there and doesn’t solve any of Bitcoin’s scaling problems. It also has some privacy issues, which can be confusing to deal with considering that most wallets don’t protect your data anyway.
The Lightning Network’s purpose was designed to address the blockchain bottleneck caused by an increase in demand that can lead to transactions waiting hours or days for confirmation on average and up to weeks at times. By enabling more transactions per second as well as faster confirmation times, it could allow use of bitcoin in everyday life even if you are not mining bitcoin yourself. This innovation may be able to see some interesting ideas like micropayments come true. Lightning has been live since March 2017 and has grown at an appreciable rate ever since, with over 10k nodes currently active as well as 100k channels being open between users. According to one report, Lightning has over $69 million in locked value and will receive support from Kraken and other prominent exchanges.
To sum it up, the Lightning Network is an off-chain scaling solution for Bitcoin. It has the potential to both improve bitcoin’s scalability and reduce transaction fees, but it also comes with some disadvantages of its own. With this blog post, you should have a good understanding of what the Lightning Network is, how it works, and why people are excited about it–and skeptical too! Be inspired to learn more by reading my other blogs on blockchain technology and stay tuned as Lightning continues their development quest of settling Bitcoin payments lightning fast!