What is Lightning Network and How it Works?

Knowledgebase

27/11/2020 by Admin

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Bitcoin was introduced in 2009, and the plan met immediately with an obstacle. There was no easy way to make the process work as fast as commercial transactions. The Bitcoin structure had a low limit for transactions per second. The time-consuming process of mining meant that Bitcoin was unlikely to be a widespread system of instant transactions.

What is Lightning Network and How it Works

Table of Contents

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Bitcoin and Scale

Bitcoin has grown from its early development into the leading cryptocurrency. Its price and volume place it as a recognized financial asset in the global economy. The first problem of scale has lingered. The Bitcoin system can perform about seven transactions per second. This figure pales when compared to the VISA system, which serves about 24,000 transactions per second.

The problem of scale may be solved by a new system called the Lightning Network. This innovation can provide nearly instant transactions and low or no fee costs.

The Second Layer

The Bitcoin platform has layers, and the first is the blockchain. The second layer can accommodate a different type of transaction between two parties. It is like setting up a speed dial key on a Smartphone.

In effect, two people set up assets in a wallet with a shared set of keys. They can then move the wallet’s assets as they wish and as many times as they choose between their destinations. Each movement is nearly instant and with little or no fee. At the end, when the parties close the particular setup, the system reports the final statement to the blockchain.

Risks and Rewards of the Lightning Network

The reward is speed. Users will be able to perform many transactions almost instantly. They will experience fewer delays due to system load or crowding.

The risks come in the sacrifice of security. The blockchain only records the final account statement after the network setup closes.

Implementation of the Lightning Network

The Bitcoin Lightning Network is a work in progress with three significant teams working to develop languages and codes for best results. Currently, the network is not available for wide or public use. The principles show great promise for making the Bitcoin transaction scale much more competitive with commercial standards, volumes, and speeds.

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