What is the Lightning Network?

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3 min read

To understand what the Lightning Network is, we have to refer to one of the biggest drawbacks that Bitcoin has faced throughout its history: the problem of scalability.

Scalability

We understand scalability as the ability of a system to grow and expand at new scales, and this is something that has been presented as an obstacle for Bitcoin, especially since the end of 2017.

At that moment of hype, Bitcoin transactions had increased in an incredible way, which made the network show its less friendly side by raising commissions to unexpected figures.

Let us remember that the Bitcoin network processes up to 7 transactions per second, very little compared to giants like Visa that process up to 24,000 in the same time.

So the situation was this: many transactions waiting to be processed and very little processing capacity. The miners chose the transactions that offered the best commissions and with so many transactions the cost of the commissions skyrocketed.

This made it impossible to make micro payments, since many of these operations had to pay commissions the same as they were sent (eg if you wanted to send the equivalent of a dollar you could pay a commission dollar). A real madness.

fees-bitcoin-historico

But don’t worry, as it almost always happens in the world of technology, when a problem arises automatically people start to develop solutions.

What is the Lightning Network?

The Lightning Network is a development that works outside the Bitcoin blockchain (that is, in an off chain way) and allows transactions to be executed in a faster, more efficient and economical way.

All transactions carried out via the Lightning Network do not appear on the bitcoin blockchain and this allows to avoid saturation of the network. Only the entry transaction and the exit transaction will be recorded on the blockchain.

How does it work?

Lightning Network allows you to open something called a “payment channel” and it is through this channel where two users can carry out transactions with confirmed funds within a multi-signature address (a wallet in which the two users can access the private keys of both of them).

Then, once the channel is opened, its participants can instantly exchange assets with each other using the funds stored in that channel. Once the channel opening time is over (normally 10 minutes), the operation is recorded on the blockchain.

It is true that Lightning Network technology has not yet been massively adopted and this is due to different reasons: lack of public knowledge, lack of “friendly” applications to do so, etc. What is undeniable is that the The future of micropayments in Bitcoin is a closer reality every day.