The Lightning Network is a second-layer protocol that has been in the news a lot as of late. This off-chain network enables Bitcoiners to enjoy micropayments in near real time. Additionally, the technical structure of the network reduces fees to just a fraction of the cost of a normal Bitcoin transaction. Consequently, the Lightning Network has found many uses in today’s market.
For example, the network is ideal for high-volume Bitcoin transactions. Large Bitcoin investors have turned to the Lightning Network to improve their ROIs when making large multi-layered purchases of the cryptocurrency. Additionally, the Lightning Network has also played a critical role in pushing the Bitcoin gaming sector to new heights.
Why Bitcoin Needs the Lightning Network
Bitcoin needs the Lightning Network to meet the needs of the international community. Bitcoin is very secure. However, it’s not exactly fast. The network can handle around 7 transactions a second. In comparison, PayPay and VISA can sustain over 30,000 tps. Unfortunately, this lackluster throughput has landed Bitcoin in some uncomfortable positions.
Part of the reason for this congestion is the fact that Bitcoin has a 1MB blocksize constraint. This 1MB blocksize was part of Satoshi Nakamoto’s original Bitcoin strategy. He felt that this blocksize enabled anyone in the world to participate in securing the blockchain. Notably, this approach eventually turned into a massive debate that split the Bitcoin community and spawned the launch of Bitcoin Cash.
The network’s congestion concerns have long been in the scope of its core developers. Back as early as 2015, Bitcoiners began to sound alarm bells regarding the structure of the network. Mainly, Bitcoin was designed to increase its fees as a way to combat congestion. This strategy worked originally because it helped to reduce the amount of spam on the blockchain. However, this approach does little to help the community when the congestion is based on legit transactions.
A New Concept is Born
The history of the Lightning Network begins in February 2015. This is when two very well-known blockchain developers named Joseph Poon and Thaddeus Dryja first introduced the concept to the masses. Originally, the concept began as a discussion into ways to reduce Bitcoin network congestion without increasing the network’s blocksize. In, January 2016, the researchers released the Lightning Network whitepaper officially.
It was in 2017, that Bitcoin’s scalability issued became unavoidable. At that time, the crypto market was having a breakout year. Bitcoin had seen its value skyrocket to over $20,000. The world’s first crypto currency was going mainstream and new investors were eager to get in on the profits. All of this excitement led to a flood of new users. In turn, this bogged Bitcoin’s blockchain down. Eventually, it became so slow that it was taking days for transactions to complete.
As you could imagine, no merchant could accept Bitcoin if it would take days to receive the funds and there was no telling how much the value of the coin would change during the delay. As such, this congestion eliminated Bitcoin’s ability to function as a peer-to-peer electronic cash system for some time.
Shed Some Light on the Issue
In March 2018, Lightning Labs launched the Beta version of the Lightning Network. Notably, the Lightning Network is an open-source project that has three main developers. The developments teams from Lighting Labs, ACINQ, and Elements Projects all began issuing Lightning Network protocols in short succession.
Notably, these firms are able to work separately and retain interoperability via the use of bolts. Bolts are Lighting Network programming basics. Each firm must adhere to the bolts to ensure that their developments fall in line with the overall goal of expanding the Lightning Network.
How the Lightning Network Functions
The introduction of the Lightning Network has helped to reduce congestion from the network in many ways. The off-chain protocol leverages special personal payment channels. Users open these channels up directly between each other. Once the off-chain channel is open, users can send unlimited amounts of Bitcoin at a fraction of the cost. The cost reduction comes from the fact that all the transactions made within the personal payment channels don’t post to the blockchain until the channel is closed.
The introduction of the Lighting Network reopened the door for merchants seeking a way to accept Bitcoin. Now, they no longer had to wait hours to receive their crypto. Instead, the Lighting Network supports near-instant payments. Additionally, users can purchase small items using the micropayment functionalities of the system. Micro-payments are a crucial element of daily use for a currency. Think of buying a pack of gum or a sandwich. To be successful as a monetary system, Bitcoin needed to support these daily activities and more.
The Top Benefits of Lightning Network
One of the biggest advantages of the Lighting Network is its custodian-free design. The network has no central authority and is censorship-resistant. Also, users never have to send their currency to a third party to make transactions.
Additionally, the network provides unmatched scalability for Bitcoiners. The off-chain structure of the Lightning Network provides it with near limitless scalability. For example, the Lightning Network can scale up to millions of tps. As such, it surpasses today’s top-performing credit card networks and more.
Bitcoin Gains More Functionality
Another major benefit the Lightning Network brings to the table is the addition of new features. The Lightning Network enables developers to create and leverage smart contract programming on Bitcoin’s blockchain. This is a major upgrade as Bitcoin launched long before smart contracts were a main feature of blockchains. Also, the Lightning Network supports direct on-chain coin exchanges via submarine swaps.
The Lightning Network is Easier than Ever
Over the last few years, the Lightning Network has seen considerable development. Although the network is technically still in Beta testing, it’s already in use across multiple platforms. Today, there are hardware LN nodes, mobile wallets, games, and much more supporting this off-chain protocol. You can expect to see even more Lightning Network support as users continue to seek out cost-effective Bitcoin strategies in the market.