What do you need to know about bitcoin’s lightning network?

Are you on the lightning network? It’s a second layer technology in the Bitcoin network to make the transactions occur more efficiently. It increases the capability of the Blockchain by taking away transactions and making the off-chain to reduce the congestion. It will improve the speed, cost, and more accurate transactions than those conducted directly in the Blockchain network. 

Comparison of Scalability

You must have known about the most popular payment processor Visa. If you compare the current transactions per second of the Bitcoin network with Visas, you will get surprised. Currently, the transactions per second in the Bitcoin network is only seven. It’s far less than Visa’s average transactions per second, i.e., 24,000. Moreover, the peak capacity is much higher than it, i.e., 50.000. 

Although many proposals have been made in the Bitcoin community, and an overall revolution is required to compete with the current situation. One possible solution has come up from the various proposals, which is the ‘Lightning Network.’

Lightning Network: What is it?

The lightning network uses a micropayment channel that scales the capability of Blockchain to make the transactions more efficient. It’s possible because of keeping the transactions off-chain away from the main Blockchain network. As a result, it reduces the congestion of the Bitcoin network. Now, let’s understand it in a simpler way with examples of how it works.

How Lightning Network Works?

The below example may help you to understand the lightning network in a simple way. Suppose Bob and Dan are looking for a channel through which they can make frequent transactions with minimal fees. So, let’s know about how they can get benefits by setting an off-chain channel.

• First of all, they have to create a multi-signature wallet that will allow them to get their private keys. Next, they deposited a particular amount on the wallet, say 5 BTC each in the wallet.
• Now, both of them can make unlimited transactions between them. The transactions will only be updated to the Bitcoin Blockchain only after the channel gets closed.
• Unless they close the channel, it will not be updated in the main Bitcoin blockchain.

The best thing about the lightning network is once it gets widely adopted, a user doesn’t need to create a channel for making transactions. You can send money to another user instantaneously with the help of a lightning network. 

However, the main concern with the lighting network will be security issues. It can be used for small transactions, but it cannot be the ideal way of making larger transactions. Now, let’s discuss the advantages and disadvantages of the lightning network to know whether it can be widely adopted in the Bitcoin Blockchain to improve the scalability issues. 

Pros

As mentioned above, it’s still not adopted fully, and it’s in the development phase. However, these are some advantages that it will offer if developers can make it possible.

• It will improve transaction speed, which is the main concern of the Bitcoin network. You won’t need several verifications before every transaction.
• It will reduce transaction fees. As the transactions will occur outside the Bitcoin Blockchain, you will have to pay a small transaction fee.
• Another major advantage of the lightning network is it can improve the scalability upto 1 million transactions per second.
• Cross-check atomic swaps is also an exciting advantage that allows making transactions between two different chains.

Cons

• One of the main disadvantages of the lightning network; it’s still not fully operational.
• It can make the process more complicated with a large number of channels once adopted.
• Limited transactions amount. That means the number of Bitcoins stored in the channel will be the maximum amount that can be transferred via the channel.

Conclusion

Hopefully, the above article has helped you to understand the lightning network. If you want to invest in cryptocurrencies from your mobile or tablet, you can check out online trading app to trade bitcoin. Now, what do you think; is the lightning network that can bring a solution to the scalability issue?