What is the Lightning Network?

--:--
What is the Lightning Network?

continues to grow in importance and a variety of factors are pushing the digital currency further into the public’s consciousness. As a result of the continued growth in interest, it has become necessary to scale the Bitcoin network in order to allow it to handle a much greater quantity of transactions. A number of scaling solutions have presented themselves, and we take a look at the Lightning Network, which has emerged as one of the most viable options.

Scaling Bitcoin

In August 2017, Segregated Witness (SegWit) was implemented on the Bitcoin network, SegWit is a protocol that allows the Bitcoin network to expand by employing a process that removes signature data from Bitcoin transactions and increases the block size limit on the blockchain. The removal of certain aspects of transaction data creates “extra” space and allows a more transactions to be added to the chain.

Analysts in the sector see the implementation of the SegWit protocol as being essential to the eventual implementation of the Lightning Network and SegWit allows interested parties to test their scaling solutions on the main network. This paves the way for the Lightning Network to facilitate almost instantaneous transactions and micro transactions to take place on the Bitcoin network.

Offline Channels

The Lightning Network is backed up by technology that improves the process that covers transaction validation. Currently, the process requires the use of mining rigs, and involves high spec computers that solve complicated math problems in order for transactions to be recorded on the blockchain ledger. Due to the amount of computing power utilized in the process, it can take up to an hour to confirm just a single transaction.

However, with Lightning this process would be sped up significantly, as the Lightning Network would allow participants to agree to transact on a separate, offline channel. Upon completion of the interaction, the blockchain would be updated to include the final results of the external transactions. In order to process transactions two parties will open a payment channel and record its opening on the blockchain. This offline channel will allow for any number of transactions to take place and can also stay open for hours or even decades if required. The two parties involved can access the blockchain in order to finalize their dealings and close the channel. This is done by writing the final status of the transactions that took place via the channel on to the blockchain.

Instant Transactions

As not all transactions are required to be recorded on the blockchain, a much greater number of transactions are able to be undertaken between any two parties. The ability to bypass using the blockchain in order to record transactions opens up the possibility of conducting and processing almost instant transactions.

It is possible that Lightning will help reposition Bitcoin, and allow it to become competitive with other instant payment platforms as well as also revolutionize the way that peer-to-peer payments are transacted. This process does away with the need for cumbersome, expensive mining rigs and can result in transaction speeds that would enable Bitcoin to be used at retail point-of-sale terminals, or anywhere else where instant payments are required.

In this video, cryptocurrency educator Andreas Antonopoulos discusses different approaches to scaling Bitcoin, including the Lightning Network.

To see more Bitcoin videos, check out CoinCodex TV.

Jon is a senior writer at CoinCodex, specializing in blockchain and traditional finance. With a background in Economics, he offers in-depth analysis and insights into cryptocurrency trends and the evolving financial landscape. Jon's articles provide clarity on complex topics, making him a valuable resource for both crypto enthusiasts and finance professionals.

Download App

Keep track of your holdings and explore over 10,000 cryptocurrencies

CoinCodex iOS AppCoinCodex Android App
CoinCodex All