The lightning network is a concept proposed by Joseph Poon and Tadge Dryja. It is the second layer of technology for Bitcoin and uses micropayment channels to scale its transaction capability.
The transactions will be instant and enhance Bitcoin’s utility as a medium for daily use. Do you think that the lightning network is a technology of transaction for the future? Read on this article till the end to get answered.
What Is Lightning Network?
The lightning network is a second layer solution that enables significantly greater scalability by allowing the network to conduct millions of transactions per second. It is specifically designed for cheap, fast, and private payments.
Payments or transactions are done when the sender and receiver holding a private key share the fund in that address. The most important features of the lightning network are:
Instant and Fast Transactions
The lightning network provides lightning-speed transaction facilities. Security is enforced by blockchain smart-contracts without creating an on-blockchain transaction for individual payments.
The lightning network has the capacity to perform millions to billions of transactions per second in a network.
Low transaction fees
Comparatively, the lightning network offers low transaction fees, which allows cases like instant micropayments.
Advantages of the Lightning Network
The main advantages of the lightning network are listed below.
- It helps to reduce the traffic in the Bitcoin Blockchain
- Provides instant transactions
- Use bidirectional payment channels
- Allows the transfer of small values
- Transactions are done between electronic devices without any human interference
Limitations of the Lightning Network
- A strong internet connection is required to transfer funds. Lightning network payments cannot be completed if the receiver is offline.
- To keep funds safe, users should continuously monitor the network
- The lightning network payment system is not capable of conducting large payments.
- Requires some manual work and high transaction fees for opening and closing a payment channel.
How does Lightning Network help Bitcoin?
Lightning networks will help you to spend anywhere Bitcoin is accepted. At the very beginning of Bitcoin, it has been only capable of processing around 7 transactions per second.
But after a few years, the system becomes more congested and the transactions take a long time to process.
Obviously, the total Bitcoin system can’t compete with the fiat currency payment system in this situation. At that time, Joseph Poon and Tadge Dryja proposed an ideal system to improve the scalability of Bitcoin.
It’s called the lightning network. The working of lightning is entirely different.
If you want to transfer funds to your friend, then use your private keys to sign in to an updated balance sheet. When the channel between you and your friend gets closed, the actual update of the fund happens.
Only after that, the information about the initial balance sheet and final balance sheet will broadcast into the Bitcoin blockchain.
The scalability issue of the Bitcoin system will be actually recovered with the help of the lightning network. This makes Bitcoin a truly decentralized cryptocurrency system.