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Bitcoin and Ethereum, which each have millions of users, need help with scalability because blockchain technology was not used to gain them widespread adoption when it was developed in the late 2000s.
It Might Be Possible To Solve Bitcoin’s Problem lightspark lightning network, a revolutionary second-layer blockchain upgrade. People are calling this technology a “game-changer” for bitcoin, generating a lot of excitement.
Here’s everything you need to know about the Lightning Network, how it works, and why you might need it.
What is Lightning Network?
The Lightning Network adds new transaction functionality to the Bitcoin network at Layer 2. Using it, two parties can create a peer-to-peer payment channel away from the main blockchain, also known as an off-chain transaction.
Bitcoin allows off-chain transaction parties to avoid the typical congestion on the mainnet. Once both parties are done, the off-chain transactions are combined and written as a single key transaction on the bitcoin blockchain.
Why does bitcoin need the Lightning Network?
Bitcoin’s blockchain only allows a limited number of transactions per block. Therefore, if your transaction cannot be included in the current block, it will be queued for inclusion in the next block. You may have to wait a few minutes or several days for the queue to fill up.
It’s hard to use bitcoin for everyday transactions because of bitcoin’s scalability, and you can’t buy coffee or groceries with bitcoin if the transaction takes hours to complete. Because bitcoin cannot be used for micropayments or everyday use, it is a form of “digital gold”.
How does the Lightning Network work?
As a layer-2 solution, the Lightning Network works directly with bitcoin. Because bitcoin is a payment method, all peer-to-peer communication is strictly between two parties.
Invoices are locked with bitcoin, so the paying party scans the invoice with their Lightning wallet, while the receiving party scans the QR code with their Lightning wallet. Payment channels act like ledgers that record transactions between two people until they are closed.
The main blockchain has no need to know when bitcoins are transferred between two parties indefinitely. When both sides are done, the channel can be closed. The logged data is stored in a transaction and sent over the bitcoin network.
A Lightning Network transaction will consolidate hundreds and dozens of other on-chain transactions into one, making it ideal for everyday purchases as it enables small, instant payments.
What is Lightning Network Fee?
Lightning Network charges a nominal fee. Its base fee is 1 Satoshi ($0.00000001 BTC), which is roughly equivalent to $0.04. It can also handle one million transactions per second, eliminating all fees.
On the other hand, the main bitcoin blockchain can process about seven transactions per second. The Lightning Network’s channels therefore enable near-instant transactions between parties.
Lightning Network Pros
It is important to note that the Lightning Network has many advantages and when applied to Bitcoin, it could bring about a significant change in the cryptocurrency market.
- Transactions Per Second (TPS) – The Lightning Network can dramatically increase the transaction bandwidth of bitcoin and speed up transactions at the same time. Off-chain transactions allow people to bypass the bitcoin blockchain and transfer bitcoins between themselves in near-instantaneous time.
- Keep it private – Even though the Lightning Network is not as private and anonymous as Monero, it is more private than the Bitcoin mainnet. After the transaction is written to the blockchain, the payment channels are closed. There is a common misconception that criminals use cryptocurrencies to hide their identity, but the bitcoin blockchain proves the opposite. Anyone can see which wallets were involved in a transaction. As a Lightning Network transaction is not recorded on the mainnet, it is more private than a Bitcoin blockchain transaction. Essentially, they are doing a transaction.
- transaction cost – Lightning Network transactions also have lower fees, and you’ll pay more during periods of congestion because bitcoin’s blockchain prioritizes transactions with higher values. You can open a channel between two parties and send bitcoins using Lightning.
The growth of the Lightning Network in 2022 demonstrates its potential to be the next big revolution in bitcoin. In March 2022, more than 80 million people had Lightning payments, with more than 100,000 in summer 2021. It will also let users trade other types of tokens through Lightning Labs. The protocol enables users to trade stablecoins on Lightning and Bitcoin instead of BTC. The Lightning Network is becoming more popular on cryptocurrency exchanges.
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