As we have seen before, the bitcoin blockchain still has some problems in terms of scalability and that the network is slow. In previous blogs I have outlined what the solutions to this might be. Think about blockchain bridges and sharding. In addition to these two solutions, we can add a third: the lightning network. What is the lightning network and how does it work? How can this network help the bitcoin blockchain become more efficient?
General
Do you remember the end of 2017? At the end of 2017, the price of bitcoin dropped by many percent (somewhere around 50% or more). Many people invested in bitcoin at that time and a hype was born. In addition to the fact that the price fell, the bitcoin blockchain was running up against its limit. Due to the many transactions, the bitcoin blockchain could not process it all. This also meant that bitcoin could not be considered a global payment method yet. However, some countries have already accepted bitcoin as a means of payment. The best known country is El Salvador. The lightning network (LN) is one of the solutions to increase scalability and increase the number of transactions that can be processed on the blockchain.
A solution to the scalability problem
The LN is a solution that does not take place on the blockchain. It is a solution outside the original bitcoin blockchain. The LN is not built as part of the bitcoin blockchain itself, but it is a network built on top of the original blockchain. Thus, the transactions of the lightning network do not take place on the bitcoin blockchain, but on the LN. The reason why the LN is built outside the blockchain is because the current blockchain cannot handle more than about 7 transactions per second. If these transactions were to be processed on the blockchain, it would take a lot of processing power and energy. In addition, the bitcoin blockchain does not have the capacity to process all of this quickly and efficiently. To offload the bitcoin blockchain, transactions can be processed on the LN.
The LN can be seen as an additional layer on top of the bitcoin blockchain.
How does the lightning network work?
If you don't feel like waiting for your transaction to be processed on the bitcoin blockchain network, you can use the LN. To use the LN, you must first send your bitcoin to the LN. To do this, you need a lightning wallet that you can download. So you first send your bitcoin to this wallet. The step of sending bitcoin to the lightning wallet is a transaction on the bitcoin blockchain. Once you have sent your bitcoin to your lightning wallet, you make sure you connect to a node (computer) of the LN. This connection is also called a ''channel''. Through this channel you can send your bitcoin to anyone on the LN. Sending a transaction over the LN costs a few cents. If you send your bitcoin within the LN, it will not occur on the bitcoin blockchain and is not visible on the bitcoin blockchain. As a result, transactions on the LN are private.
Important to note is that the LN can be used not only for bitcoin, but also for other cryptocurrencies that support the LN.
Does the lightning use network blocks?
No. Sending a transaction works differently than on the bitcoin blockchain. On the bitcoin blockchain, transactions are processed by miners in a block that is verified on the (blockchain-)network. The new block (of bundled transactions) is linked to the previous block. This does not happen on the LN. On the LN, transactions are processed individually. Your transaction will reach the recipient through different nodes. So you pay, as it were, from the node where you connected (node 1) to node 2, which again forwards to node 3 etc. until it reaches the recipient's node.
Closing the channel
If you have received your tea and no longer need to use the LN, you can subsequently disable the LN (you can turn off the channel). You then send your bitcoin back to your bitcoin wallet. This transaction - from your LN wallet to your bitcoin wallet - is visible on the blockchain. But the transactions you made on the LN is not visible. This leads to fewer transactions that needs to be executed on the blockchain so the bitcoin blockchain would not be congested.
Who is the lightning network useful for?
Suppose you want to buy a cup of verveine tea from the local store (thank you colleague for introducing me to this tea!) Suppose this store accepts bitcoin payments. If you want to do that via the bitcoin blockchain, it will take about 10 minutes for the shopkeeper to receive the bitcoin. By using the LN, you can connect to the LN which sends the bitcoin super fast to the shopkeeper. This is all done outside of the bitcoin blockchain network. This way the shopkeeper doesn't have to wait 10 minutes for payment but instead it happens within seconds.
Is the lightning network a good solution?
It is a way to offload the bitcoin blockchain. Practically speaking, though, it is a cumbersome way to do a transaction. You have to connect to a node on the LN and send your bitcoin to a lightning wallet. This is an extra step you have to take. In addition, you also need to have your own node to do your transaction with. If you are not in a hurry, it is easier to send your bitcoin through the bitcoin blockchain. The LN is not very user friendly yet. But the transactions on the LN are private. But the network must also be resistant to hackers and other privacy issues.
It is worth noting that the LN is in its infancy. It has only been around since 2018. Since then, the network does grow rapidly and more and more nodes are joining the network. Also, more and more people are using the LN. But we are still far from where we want to be with the LN. It needs to be more user friendly if more people want to use this network. This can be done through apps or clear instructions on the lightning website. It will take a couple of years before the LN becomes known to the general public. Until then, there are still some improvements to be made.
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