What is the Lightning Network
and why is it important for the future of cryptocurrency?
Bitcoin amazed the global trading community during its historic run to $20,000 in 2017. After a rough ride in 2018, Bitcoin recovered it’s mojo in 2019 with spectacular gains. Into early 2020, Bitcoin looks ripe for a move into the Bitcoin halving of 2020.
Those who were using Bitcoin for payments and other financial transactions noticed something else during these high volume periods. The network had grown so busy, transaction processing times began lagging and the cost of mining fees increased substantially, especially in 2017.
Bitcoin needed to scale to accommodate this the substantial increase in transaction volume. That’s where the Lightning Network fits in. First drafted in a white paper in 2015, it went live in 2018.
Let’s take a closer look at what the Lightning Network is, how it came to be and the role it is expected to play in the future of cryptocurrency.
Why was the lightning network created?
Bitcoin’s design architecture features miners validating transactions on the blockchain by solving complex cryptographic computations. This process, called proof of work, has proven remarkably secure, however, the downside is that Bitcoin transactions typically require 10 and up to 15 minutes to validate.
The transaction clearing length and the low transaction volumes relative to legacy payment rails remains a challenge for some use cases. Most of us aren’t willing to wait ten minutes for our morning coffee, after all.
Bitcoin’s developers understood this challenge took two separate to address this scaling issue. The first was an increase in the size of blocks on the Bitcoin blockchain through a hard fork. The second solution kept the block sizes the same, but added a new “second layer solution” to handle smaller transactions with “lightning speed.”
The Lightning Network is born
That second layer solution, called Lightning Network, was chosen by the largest number of Bitcoin developers. Those in the Bitcoin community who were in favor of expanded block sizes later moved ahead with their own scalability-focused hard fork, which became Bitcoin Cash.
The Lightning Network increases scalability by adding a second layer to the main Bitcoin blockchain that radically increases the speed of transactions. Users can conduct multiple transactions on the second layer chain, then have those transactions bundled into a single transaction on the main Bitcoin blockchain. This avoids the 10 to 15 minute transaction clearing times that are problematic for micro transactions.
After launching in March 2018 with 60 nodes, The Lightning Network tripled its total capacity from November 2018 to December 2018.
What is the future for Lightning Network?
The Lightning Network has experienced some growing pains through 2019 including some network vulnerabilities. However, with 12,000 plus nodes as of March 2020, the network continues to overcome those problems.
One of the other challenges has been adoption by casual Bitcoin users. This is because using the Lightning Network requires operating a channel, a process by which two multi-signature Bitcoin wallets transact with each other on the second layer. Operating channels may be a step too far for many casual Bitcoin users.
However, as the Lightning Network grows, the expectation is that channels will become so commonplace that it won’t be necessary to open a dedicated channel to send money to each specific person. Instead, users will be able to route payments through their existing group of connections and the network will automatically process the payment through the shortest route.
That’s a great outcome for traders, coffee lovers and anyone looking for a payment method that is quick, transparent and inexpensive.
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