What is The Bitcoin Lightning Network (LN)?
When it comes to Bitcoin transaction speeds can be slow.
Especially with the increase in usage and popularity of the coin, the block sizes are getting full and mempools full of transactions that need to be verified.
Although, there is a way to fix this. A way to get transactions from person to person quickly and easily.
With lower fees and more trust.
That is the Lightning Network.
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What is the Lightning Network?
The Lightning Network is yet to come to Bitcoin.
Granted, they have been working on the implementation of it for a while.
And currently, the lightning network has been tested and working on Litecoin.
The Lightning Network is a bidirectional payment channel connected end-to-end.
That means that anyone can route a payment from channel to channel without trusting any of the intermediaries.
There have been implementations of the Lightning Network by many different teams to date.
How The Bitcoin Lightning Network Works
The Lightning Network opens a bidirectional payment channel.
What that means is that it can create a direct route from one participant to another.
Rather than sitting in the mempool waiting to be integrated into a new block, then verified, this allows someone to transfer Bitcoin for cheap instantly.
It means that if John wants to send money to Karen, he can open a channel through Scott, Melissa, and Joan to Karen.
It is a quick and direct payment channel.
Allowing the transfer to work like this:
John is sending 1 BTC to Karen.
So he sends it to Scott, who sends it to Melissa, who sends it to Joan and finally to Karen.
Then it is put into a blockchain.
Each of these nodes is all recognized and safe, the confirmations do go through, but this goes a bit offline.
Now, these lightning nodes do get compensation as sending this 1 BTC, in this case, is the sending of 1.03 BTC.
Then each node on the LN (lightning network) gets .01 bitcoin.
Subsequently, Karens get 1 BTC and Scott, Melissa and Joan each get .01 BTC.
Currently, Bitcoin does offer the Lightning Network
Although, it is both sparse and riskier. As each of the participants in the lightning transaction has to stay online during the transfer.
That means that if one goes offline, the Bitcoin can be lost.
What is a Lightning Network Node?
On Bitcoin, certain nodes (mining computers) can help to transmit lightning transactions.
Now Ethereum will be able to run something called light clients.
Although, currently both Bitcoin and Ethereum don’t have any light clients or lightning network nodes that are running at mass.
The Benefits of The Lightning Network (LN)
The main reason for the Lightning Network is speed.
The transactions on the Bitcoin Lightning Network are settled in milliseconds instead of minutes or hours it can take now.
HTLCs (hashed timelock contracts) can be cleared without committing transactions to a block.
What is a Hashed Timelock Contract (HTLC)?
This is a class of payments using hash locks and timelocks to require the receiver of payment.
That means that someone can receive payment before the deadline, generating a cryptographic proof of payment or forfeiting the payment altogether...
Which will return it to the sender.
The Lightning Network offers more privacy than a regular Bitcoin transaction.
Being that you have a direct channel, it is not a public transfer.
While anyone participating in the lightning network can see a payment moving through the channel, they do not know the sender or recipient.
While we have talked about fungibility before on the Bitcoin network, the Lightning Network offers it as well.
This makes it much more difficult to track what Bitcoins are used for and blacklist it all together.
Making the security and fungibility of the currency much better.
The LN can have “dust” limit payments and the smallest Bitcoin transactions as it doesn’t require large fees or transaction times.
The LN helps to improve the capacity of the Bitcoin system. With the Lightning Network, there isn't an upper bound to the number of payments per second.
Making a diversity of both the Bitcoin network, as well as payment options available.
What's Next For The Lightning Network?
The Lightning Network is one of the best ways for the Bitcoin network to scale.
It helps not only with the density of transactions coming through the blockchains but also the speed at which users can conduct Bitcoin transfers.
Along with the privacy of the overall network.
All in all the LN is a way for Bitcoin to scale and be delivered to the masses.
Thanks for reading,
The GCA Team