The most well-known cryptocurrency is Bitcoin. It is essentially just a form of sendable and receivable digital money.
The popularity of Bitcoin, however, is also a curse.
The transaction becomes slower and more expensive as more people send and receive Bitcoin.
Although many people want Bitcoin to replace cash as our preferred method of payment, the way Bitcoin works right now, even buying a cup of coffee might take several minutes or even hours. This is due to Bitcoin's limited transaction rate of 7 per second. The next user must wait if there are more than 7 users of Bitcoin at a time.
Additionally, as they would be rewarded more, Bitcoin miners choose to mine the transaction with the highest fee first. This means that in order for your transaction to be validated before those of others who paid less, you must spend more if you want to execute a Bitcoin transaction quickly. However, nobody will use Bitcoin to purchase coffee if there is a $50 transaction charge attached to it.
We need something like the Lightning Network.
The Lightning Network: What is it?
It is possible to conduct Bitcoin transactions outside of the blockchain using the Lightning Network.
The Bitcoin network can become congested with too many little transactions, therefore the Lightning Network was created to address this issue. The limit for transactions using the Lightning Network is 0.168 Bitcoin.
The Lightning Network bundles hundreds or thousands of individual Bitcoin transactions and only sends the entire amount back to the blockchain. This means that even if there may be hundreds of transactions, only one major transaction needs to be processed by Bitcoin.
The Lightning Network enables users to execute thousands of transactions per second while still being able to rely on Bitcoin's security and decentralization. This helps speed up and scale the slow Bitcoin blockchain.
The costs on the Lightning Network are essentially nonexistent because there is only one translation that the Bitcoin blockchain must deal with. The transaction fees are actually pennies' worth. This implies that those wishing to conduct small transactions, such as buying a coffee, won't incur any additional fees.
Transaction time is almost nonexistent, and there are no fees. On the Lightning Network, sending a small amount of Bitcoin will take only a few seconds as opposed to many minutes.
The Lightning Network: How Does It Work?
The Lightning Network is built on top of the Bitcoin blockchain and is a second layer. The first layer is Bitcoin. Blockchain layers are merely a mechanism for us to classify and comprehend the blockchain's design.
Blockchain layer 1 is Bitcoin. Blockchains at layer 1 are in charge of enabling users to send and receive transactions through their network.
A layer 2 is the Lightning Network. By processing hundreds of small transactions quickly and delivering them as one, a layer 2 is designed to help scale the layer 1 blockchain.
The Lightning Network allows users to create direct payment channels with one another, which speeds up Bitcoin transactions.
Once two users have established a payment channel, they are free to send and receive any number of transactions. They can shut the channel when they want to withdraw their money. As soon as the channel closes, the Lightning Network broadcasts the total amount, which is then added to the blockchain of Bitcoin.
Let's say that each of us opens a channel with 10 BTC. After a series of transactions, I have 5 Bitcoin and you have 15 Bitcoin. Once all transactions have been completed, we close the channel. Instead of having 10 BTC each, the Lightning Network now informs the Bitcoin blockchain that I now have 5 BTC and you now have 15 BTC.
The great thing about the Lightning Network is that not everyone you wish to transact with requires you to have a payment channel open. As long as they both have a channel open with User 2, User 1 and User 3 can transmit 1 BTC to each other without starting a channel.
In the event that a coffee shop has channels open with thousands of users, you also have access to those people without first setting up a payment channel with them. The Lightning Network will eventually allow everyone to be in contact with one another.
Will Future Technology Make Use of the Lightning Network?
Time will only tell! However, given its rising popularity, it appears that the Lightning Network will play a significant role in daily Bitcoin transactions.
Many organizations, including entire nations, now accept Bitcoin over the Lightning Network.
You may already be aware that El Salvador has declared Bitcoin to be accepted as currency everywhere. The government developed the Lightning Network-capable Chivo wallet mobile application. El Salvador residents can now swiftly and cheaply buy and sell things using Bitcoin.
Another major supporter of the Lightning Network is Twitter. Bitcoin tipping is supported on Twitter for users. Tips are now made in incredibly tiny quantities, like 0.0005 BTC, which is ideal for Bitcoin's Lightning Network because one Bitcoin is currently valued at about $20,000. By forming a payment channel with Twitter, a user can transfer Bitcoin tips to other users who are also using Twitter as a payment channel without having to open payment channels with each other first.
Cash App is another significant business utilizing Bitcoin's Lightning Network. If you are unfamiliar, Cash App is a mobile application that enables users to send and receive money with their pals. Bitcoin is accepted as a payment mechanism by Cash App. Once more, the majority of these transactions are modest: $20 for supper here, $10 for gas there. Users of the Cash App can send and receive Bitcoin instantly using the Lightning Network.
You gained knowledge of the Bitcoin Lightning Network's definition, necessity, and operation today. To sum up:
A means to conduct speedy, affordable Bitcoin transactions outside of the Bitcoin blockchain is using the Lightning Network.
Only 7 transactions can be processed by Bitcoin each second. Transactions become more expensive and slower as more people use Bitcoin. By processing numerous small transactions and submitting them to the blockchain as a single large transaction, the Lightning Network accelerates the Bitcoin network.
By enabling users to establish Bitcoin payment channels, the Lightning Network functions. Then, users can engage in as many transactions as they like with one another. They will close the channel once they are finished and prepared to take their money. The final transaction outcome is then recorded by the Lightning Network on the Bitcoin blockchain.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.