Sirwin
Sirwin
The Lightning Network looks promising.

A new era: Bitcoin's Lightning Network explained


Hi guys! Today I will be talking about a less common feature of many blockchains: the Lightning Network. Let's dive right in. 

What is a Lightning Network?

The Lightning Network creates an extra "layer" over the normal Bitcoin blockchain and allows any two parties to create payment channels with each other. The point of the Lightning Network is that we don't really need to keep a record of every single transaction we make.

Let's start with an example. Alice and Bob create a multisig wallet(that is a wallet that they can both access with their private keys-a post explaining this in detail will be posted soon)and deposit 1 BTC each into that wallet. From then on, there can be unlimited transactions between the two with minimal to no transaction fees. Every time a transaction takes place on the payment channel, Alice and Bob's private keys sign for a updated balance sheet.

The transaction on the blockchain only happens when the payment channel is closed, and the final balance sheet is used in that transaction. So basically if Alice sends Bob 2 BTC and Bob sends her back 0.5 BTC, the final blockchain transaction will be 1.5BTC. It won't be 2 separate transactions. 

What are the advantages of a Lightning Network?

The main problem with bitcoin is now fixed: its high transaction fees. The Lightning Network has no fee, meaning that microwallets will cease to exist, and faucets and micropayments will just be sent directly to the recipient. On top of that, the transaction takes the same amount of time as the internet's speed-in other words, MUCH more faster than the current 10 minute block time for normal transactions and 60 minutes+ for  high value transactions. People can now finally spend very little and pay no fees. 

Is there an issue with the Lightning Network?

Even though the official blockchain has security, the Lightning Network doesn't have security in itself i.e a malicious user could alter the balance sheet or something along those lines.

A new feature that is currently being tested on Lightning Networks are cross-chain transactions where people can swap different cryptocurrencies without an exchange and without the exchange fee that you usually have to pay. This will likely make exchanges obsolete, because they are sometimes slow, have high fees, and potentially scammy.

The Lightning Network makes this possible because the coins are on a virtual network that isn't actually part of the official blockchain. However, as many people note, high value transactions will still be done on the main chain, simply because it has more security and waiting a few hours is worth it. 

Who developed the Lightning Network?

The Lightning Network was first proposed by Joseph Poon and Thaddeus Dryja in a whitepaper in 2015. There are currently three organisations that are researching and developing the Lightning Network: Blockstream, Lightning Labs and ACINQ.

Each is working on their own implementation in various programming languages. There are also some other, minor startups. A thing that crypto users will find appealing is that any of them can work seamlessly with another-erasing the hassle of checking compatibility.

Real bitcoin has actually already been sent and received using these beta startups, and the cross-compatibility really helps interested developers who have their own programming language of choice. 

What next?

The developers are also advising users to stay patient, as the network’s code is very complex and requires rigorous testing. To be fully adopted by the Bitcoin community, the Lightning Network will need to prove itself to be safe and usable. With that and many other factors in mind, experts predict that a fully working Lightning Network can be from several months to a couple of years away.

As to the reason why the network will be used, the answer is simple: scalability. If the network will actually provide a solution to Bitcoin’s main issue, it will most likely be adopted by other cryptocurrencies.

If that happens, there is a possibility of cross-chain atomic swap technology being developed further, thus marking a first step towards building truly decentralized cryptocurrency exchanges.

Pros and Cons of the Lightning Network

Pros:

-Low transaction fee

-Fast transaction speed

-Scaleability(there will be at least 1 million transactions per second)

-Cross-chain transactions

-Decentralised

Cons:
-Not fully functional as of yet, but development is underway. 

-Complexity of transactions and channels

-"Hubs"(nodes that a lot of channels go through)

-Security could be improved

How can I start using it right now?

There are some Lightning Network Wallets that are better than others. To see the wallet reviews by 99bitcoins, go here.

Using the Lightning network in beta is risky. Use it at your own risk. I am NOT responsible if your funds get stolen or lost. 

 

Thanks for reading! If you liked the post, please consider tipping. 

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thecryptoguy123
thecryptoguy123

Hi, I am a new blogger. I am keen to share knowledge for all of us to know.


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