Bitcoin is the most popular public blockchain network but the issue of scalability makes it challenging for developers. Hence as a solution to this problem the lightning network is proposed to resolve Bitcoin’s scalability challenge. Transactions can be delayed for confirmations if there is a backlog on the blockchain. The lightning network would allow users to make transactions off-chain and only settle back onto the blockchain if there is a dispute. This would allow for faster transactions with lower fees. The lightning network is still in the development phase, but has been tested successfully.
The Lightning Network is not a network within Bitcoin and bitcoin nodes but a separate one built atop it where the existing Bitcoin wallets of users and transactions will function without any problem. Lightning is expected to be a type of Bitcoin network that can facilitate instantaneous and cheap Bitcoin transactions between participants without compromising security or decentralization. Lightning networks will help us so as to have another layer of protection.
How to use the lightning network
To use the Lightning Network, you first need to set up one channel, which will require you to pay at least one Bitcoin. Several small payments can be made with it as a user want at almost no cost or very little expense until their account is empty. A user willing to take the funds out of the Lightning Network will have to pay at least one Bitcoin once more.
If you want to only send payments once, the Lightning Network is not for you. But the Lightning Network can be beneficial if you will be making multiple payments to the network’s merchants and individuals. Once you have set up for the Lightning Network, you will be capable not only to make payments to one merchant, but every member of the network.
Users can experiment with the Lightning Network on the Testnet- a clone of the Bitcoin network, without having to undertake a lot of hassle. The Testnet provides testing grounds for experimentation that otherwise may have bugs, and it offers many test addresses for quantities of virtual currency.
How does the Lightning Network work?
Participants who operate payments in the Lightning Network open so-called 2-of-2 multi-signature wallets as payment channels. In this series of wallets, both parties spend snippets of Bitcoin, without needing to add it to the Bitcoin blockchain. Each of the payment amounts is trivial and leaves no trail of funds on the blockchain. It keeps the cost of each transaction quite low.
This protocol makes it possible for the creation of a protected, encrypted peer-to-peer payment method among organizations, businesses, and consumers. Once this channel has been activated, it allows both users to exchange any amount of data almost instantaneously as well as extremely cost effective. It is its own little ledger for users to pay much smaller amounts, such as for a cup of coffee or tea without affecting the Bitcoin network.
To create an open channel of payment, you must lock Bitcoin into one of the channels. When Bitcoin is locked into the channel, the recipient can create invoices for the amounts they wish. If the recipient prefers to keep the channel open, they can add more Bitcoin on a regular basis.
Interacting using a Lightning Network channel allows both parties to achieve digital transactions but only the main Bitcoin blockchain is updated. Bitcoin’s standard transactions are different from Lightning Network.
Pros of Lightning network
Both of the parties in a transaction can transfer money between themselves indefinitely without notifying the central blockchain. Since all transactions in the blockchain do not have to be confirmed at all nodes, this strategy greatly reduces settlement times. Nodes allow users to create their own channels, or betting pools, through which they can send funds with low fees; these are then combined together into one main pool operated by all participants who choose not to go off network (i e make payments without waiting until later). This way you don’t need 750 nodes running at once–just let them combine inputs from different paths!
When the transactions are finalized, the party can close the QR code, allowing the data to be consolidated into one transaction that is sent to the Bitcoin mainnet. The consolidation of several smaller transactions simplifies the network into just one larger transaction that increases the efficiency and speed of the network’s nodes. Zeeve Inc– an enterprise grade, no-code automation platform can help with running the Bitcoin node.
Let’s say Jeremy often goes to a local grocery shop, and wishes to purchase household items with bitcoin. He may want to make a small payment for each time he makes the purchase, but the inherent drawbacks of such a thing are that the bitcoin transaction may take an hour to confirm and the network’s high transaction fees will cost him extra even if making a micro-transaction. Traditional payment companies accept small transactions via cards because of Visa’s capacity to accept several thousand transactions per second. In contrast, Bitcoin, on a typical day, has the capability to validate a very small number of transactions per minute.
Jeremy can send payments to the grocery shop through the Lightning Network using its low cost channel. Each item transaction within that channel is recorded, and the shop still receives payment. The transaction is free along with instant. When all the Bitcoin with which the channel was set up is spent, Jeremy could choose to close the channel or refill it. When a channel is closed, its transactions will be recorded to the primary Bitcoin blockchain.
The Lightning Network establishes an agreement between two parties in the form of smart contract code. Conditions of the smart contract code are coded in the agreement when creating it and can’t be violated. Additionally, smart contracts ensure an automatic fulfillment of the contract, as the preprogrammed requirements are set when the contract is initially made and all participating parties agree to them. If the contract requirements are satisfied, such as when a customer pays the agreed upon amount, then the smart contract automatically releases the payment. The Lightning Network processes transactions within a payment channel once they have been validated. All recorded information about the final transfer of value is visible to the public.
The Lightning Network offers a lot of benefits but will take a while to be adopted. Lightning Networks provides instant transactions with a low transaction fee, and it is trustless.
Scarlett is working as PR Manager with Coinfea. She has worked as a PR and Outreach executive with a reputed company in the past. She loves to create a good network of people and companies.