The Bitcoin Lightning Network explained! What is Lightning Network? LN is a cryptocurrency protocol to improve blockchain speed & scalability to facilitate micropayments & increase transactions per second through bidirectional payment channels.
The Lightning Network (or LN) is a protocol aimed at dealing with the speed and scalability issues that blockchains are currently facing. Initially designed to tackle these limitations on the Bitcoin blockchain, the Lightning Network could ultimately work on top of any blockchain. Through bidirectional payment channels that are kept off the main blockchain, this protocol will allow people to instantly send and receive payments with significantly reduced transaction fees. A payment routing system effectively creates a decentralized network of lightning-fast transactions, much as the name suggests. In Bitcoin’s case, LN has been touted as the protocol that will enable it to potentially scale to millions of transactions per second, and take it one step closer to mainstream adoption. LN was created for micropayments, with the goal of rivaling the transaction power of traditional systems such as Visa, which can scale upwards of 47,000 transactions per second. In his initial design of Bitcoin, Satoshi Nakamoto provided the building blocks for rapid transactions that take place between cooperating users & aren’t held back by fees or block times. Satoshi’s idea inspired many developers who have since been trying to refine it into a working prototype. Joseph Poon and Thaddeus Dryja were the first to publish a whitepaper on the Lightning Network. There are currently several LNs in active development with ongoing testing. The technology behind the Lightning Network enables the creation of a network of payment channels, & smart contracts ensure this network operates in a safe & decentralized manner. As such, it isn’t necessary to open a direct channel with everyone you want to transact with. Jill will act as a node that will route the payment, and the transaction between Jack and Joe doesn’t require them to trust Jill as an intermediary. A cryptographic hash ensures that Jack’s payment will reach Joe, or otherwise will be automatically refunded to him if an indirect path between them isn’t possible. What Lightning Network does is try to find the shortest payment route between two entities with the least amount of intermediaries and the least amount of fees. Intermediary nodes in LN are somewhat similar to miners in Bitcoin. They can’t control the funds they're moving and simply provide an incentivized routing service on a decentralized network. Every time a transaction uses their connecting nodes, intermediaries are paid a small fee. This routing protocol embedded within the Lightning Network effectively gives it the potential of being globally scalable. Lightning Network could very well be a game changer for tiny payments. With Bitcoin, at its lower limits, LN accounting operates to thousandths of a satoshi. Speed is another significant benefit. Regardless of the number of hops your payment has to go through on the network, it will always be completed almost instantly. There’s no interaction with the blockchain except upon the opening and closing of a payment channel. Since you don’t have to broadcast every transaction on the main blockchain, privacy is also increased. As we’ve seen it happen with mining pools, there is some degree of concern that the Lightning Network will face similar centralization in the form of payment hubs. Another question is: how will LN influence mining since people will be able to use it in order to circumvent main blockchain transaction fees? Other concerns have been raised & have to do with the impossibility of making offline payments & the time users might have to wait to get their funds back in the case of fraud or unresponsive peers. As a second layer protocol, the Lightning Network can potentially operate on top of any blockchain, & it may finally address scalability by reducing the load on the main blockchain. If that’s not a good enough reason to care, think about what it could do for Bitcoin. Imagine a more nimble blockchain that will allow you to pay for groceries at the supermarket, drinks at a bar, transportation, bills, or any number of potential real-world use cases; keeping Bitcoin’s underlying protocol intact. Lightning payments open Bitcoin & other currencies up to mainstream integration and may hold the key to one day replacing cash, credit cards, or other traditional payment methods. LN's technology still has a long way to go & some issues to work out before any of that can happen.
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