What is Bitcoin Lightning Network? How can Lightning Network help Bitcoin adoption? We discuss these and other must-know facts about Lightning Network in this simple guide for beginners.
CryptoToday – We have discussed the topic of Blockchain in one of our previous articles. Today, we want to look at this matter from the other perspective – Blockchain network scalability issues. More specifically, we want to draw your attention to the possible solution to these issues. In this educational piece, we will answer the question: What is Bitcoin Lightning Network?
As many of us already know, Blockchains are slow. When one sends Bitcoin, the overall duration of a transaction can take about a couple of hours. In addition to that, one would need to pay a fee for this transaction. These scalability issues are largely affecting the levels of Bitcoin adoption, while numerous project are currently aiming to solve these drawbacks.
Why are Blockchains slow?
Imagine Blockchain as a register with several pages, where each page has several transactions. Once the page has been filled with transactions, it has to be added to the register in order to proceed recording transactions on the next page.
Now, before a page can be added to the register, there is some processing that needs to take place. This has to be done in order to make sure that everyone agrees with the contents of the page (block). This process can take approximately 10 minutes for each of the blocks.
In addition, each Blockchain transaction holds the data about the sender and the recipient. It also states the amount of transaction and contains a transaction fee.
One can pay the fee to motivate miners to include the transaction in a block as soon as possible. There is no specific set price. Moreover, it is usually up to a sender how much to pay to speed up the process. The higher the fee the sender is paying, the faster the transaction can be executed.
The miners need to decide which of the available transactions to include to the current block. In order to help them decide, they look at the transactions with the higher return yields.
In case there are enough transactions with a higher transaction fee than, let’s say, yours to be included in the block, then your transactions will need to be executed later. One can wait for anywhere from one minute to a few hours or days.
That is why Blockchains are quite slow and expensive at times. The interesting fact is that the wider adoption of Blockchain would mean that more transactions are taking place. This, in turn, would mean a slower system.
Yet, the Lightning Network might be just the right solutions for this problem. But what is Bitcoin Lightning Network, exactly?
What is Bitcoin Lightning Network?
The Bitcoin Lightning Network is the idea that not all transactions need to be recorded on the Blockchain.
Let’ suppose two users have been sending each other transactions for some time. In this case, the LN would enable them to bypass the recording of the transactions on the Blockchain. They would take place off the chain.
Speaking differently, these users would open something that is called a payment channel between them. They would also record the establishment of this channel on Blockchain.
Now, they could send transactions any number of times via this payment channel. Afterward, they would record the final number of transactions that occurred through this channel.
By implementing this idea, users can create a network of payment channels. This system would require the rare recording of the transactions on Blockchain.
This is the whole idea of Lightning Network. Since the Blockchain ecosystem will not be used as much, the transactions would be taking place at lightning speed.
What are the Lightning Network payment channels?
The payment channels on the Bitcoin Lightning Network are like the safety deposit boxes where two people invest an equal amount of money. Each of them also puts a lock on it.
This act of depositing the equal amount of funds can be seen as the form of an “Opening transaction” on the Blockchain. Then, the payment channel is regarded as open between the two users.
Payment channel is a combination of collecting some money and then transferring the promise of the ownership as per the agreement. Closing such channel would simply imply the opening of the box and taking the money out.
Do you have any questions? Do not hesitate to ask us in the comments section below.