The Bitcoin Lightning Network: – itsDECENTralized
In all of Bitcoin’s history, scalability has been a top priority bottleneck or setbacks for digital currency mass adoption. The year 2017 was the Altcoin year, which made many attempts at solving Bitcoin’s shortcomings. The biggest problem has been the inability to process high numbers of transactions for two core reasons- scalability (block sizes, speed of transactions, cost of use, and security) and cross-use.
The Bitcoin Lightning Network is a new payment protocol that offers a very (if not the most) viable and scalable solution thus far. Could this be the most revolutionary solution that will connect the world to the Blockchain quickly and efficiently? If it does, will projects like Ethereum, Litecoin, or Bitcoin Cash have a purpose within the Bitcoin network?
What is The Bitcoin Lightning Network?
The Lightning Network is a decentralized second layer payment protocol that operates on top of the Bitcoin Blockchain, creating a scalable off-chain instant payment system. Using native smart contract scripting, it encompasses all transactions in the network in a way that doesn’t sacrifice the decentralization and security.
The Lightning Network runs off user-generated payment channels and offers instant transactions and is very cost-saving. This second layer approach is revolutionizing the way we use Bitcoin and speeding Bitcoin adoption for everyday use.
The Problem It Solves:
Bitcoin undeniably has some scalability issues. Bitcoin is limited to only seven transactions per second with a block size of 1 megabyte, while payment processing companies like Visa process 4,000 transactions per second and can scale up to 65,000 transactions per second.
For Bitcoin to become a viable means of payment, it must compete with already existing solutions and systems.
Scalability is one of the top development problems Bitcoin has been looking to resolve. Bitcoin alone can not process a sufficient number of transactions to be scalable. Bitcoin Cash and Litecoin are prime examples of the attempts to create Bitcoin scalability.
Bitcoin Cash increased the block sizes but needs a second-layer solution for mass adoption. We don’t want the blocks larger as we have found this not to be a scalable solution. As the pool of transactions gets bigger, the lower your chance of your transaction getting processed.
Litecoin increased faster transaction confirmation times and improved storage efficiency. Although significant improvements, they are proven not to be enough for mass adoption.
Solutions It Brings
The Blockchain is not very scalable compared to Visa, but maybe it doesn’t need to be. The Lightning Network proposes these small transactions or micropayments, be held on an off-network ledger or payment channel, and only upload to the Blockchain when the channel is verified and closed.
Bitcoin’s lack of speed is due to the network’s decentralized nature, which requires consensus from a widely distributed network of nodes all over the world to validate and verify each transaction.
Creating a second layer network of micropayment channels enables bitcoin scalability, micropayments down to the satoshi, and near-instant transactions. Bitcoin Lightning Network uses micropayment channels to increase the number of transactions processed, thus decongesting the Blockchain and allowing unlimited transactions without requiring a global consensus. This process is called the off-chain approach.
Reducing the throughput and transacting off-chain minimizes fees to operate and increases the use of each block’s space by grouping data into one block. This off-chain solution can resolve the scalability problem, and it can lite the ignition for global adoption.
When A sends B funds, they must create an off-channel wallet to record the new transactions. The channel allows an unlimited amount of transactions before uploading the data to the Blockchain. Users are automatically added to the Lightning Network when they have a connection with an established user that has a verified ledger.
Real-World Examples
Take small daily transactions, for example. If your morning coffee shop is on the Lightning network, it means they have an open payment channel. When you make payment for your coffee, you would automatically get connected to the Lightning Network via the purchase. The automatic connection is similar to the internet. You don’t have to be connected to every server to interact with a server.
An open channel is like an open tab. Instead of paying for each drink separately, you can open a tab and put all your orders on one bill and conveniently close out at once. When the open payment channel is closed, all the updated transactions get broadcasted, in bulk, to the Blockchain requiring one block.
Endless Applications To New Industries:
The Lightning Network is exciting as it facilities the creation of entirely new applications. Take a subscription-based streaming service, for example. What if you were charged based on your usage of the service and not a monthly flat rate. Or what if you received your salary every day or minute or as the income was made? An instant transfer of value.
The lightning network has solutions beyond Bitcoin and is not limited to Bitcoin only! There is a possibility to exchange one coin for another with something in the works called Atomic Swap. If this plays out as planned, you will be able to trade one coin for another without a 3rd party intermediary, like a cryptocurrency exchange. The network would bring true decentralization to our financial world and lightning-fast user adoption.
Although the Lightning Network is still on proof-of-concept bitcoin testnet, it is gaining users fast. The top wallets that enable you to open or connect to a payment channel, to name a few:
- Blue Wallet
- Wallet of Satoshi
- Zap
- Lightning: Fast Bitcoin Wallet
Conclusion:
The Lightning Network is full of opportunities for Bitcoin and Blockchain. It is the first all-encompassing solution for the scalability problem, which will naturally drive bitcoin mass adoption.
As the network continues to evolve, it is crucial to make sure that different implementations communicate with each other.
Unlike the Bitcoin, the Lightning Network channels can have infinite transactions using a vast network of micropayment channels. It takes just a few Monopoly corporations and industries (Supply Chain and Procurement) to get on the Lightning Network before we are all automatically connected.
The more channels created, the more we are all interlinked, the more fluid the financial process becomes and the more accurate data we obtain. Since data is the most valuable commodity in the world, will the value of Bitcoin skyrocket? Each block will contain more information and more transactions than ever before, which could make Bitcoin the holy grail of all data.
Published at Sat, 18 Jan 2020 04:23:18 +0000
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