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What is the Lightning Network — and What Does it Mean for Cryptocurrency Technology?

Bitcoin amazed the global trading community during its historic run to $20,000 in 2017. Within a single calendar year, Bitcoin saw a nearly 20x rise in value.

Those who were using Bitcoin for payments and other financial transactions noticed something else, however: because the network had grown so busy, transaction processing times began lagging and the cost of mining fees increased substantially.

In other words, Bitcoin needed to scale to accommodate this new interest that significantly increased Bitcoin transaction volumes. Fortunately, a powerful new scaling solution was in the works and about to be unveiled: the Lightning Network.

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.

The Lightning Network Explained

Bitcoin’s design architecture features miners validating transactions on the blockchain by solving complex cryptographic puzzles. This system, called proof of work, has proven remarkably secure. What it isn’t, however, is blazingly fast. Currently, Bitcoin transactions typically require 10 to 15 minutes to validate.

This limitation doesn’t impact one of Bitcoin’s primary use cases, which is to act as a store of value, much like gold. It does, however, limit Bitcoin’s use as a transactional point of sale currency. Most of us aren’t willing to wait ten minutes for our morning coffee, after all.

Bitcoin’s developers understood this challenge and devised two primary solutions for scaling. The first was an increase in the size of blocks on the Bitcoin blockchain. The second solution took a different approach: the block sizes would remain the same, and a new “second layer solution” would be created to help Bitcoin handle smaller transactions with “lightning speed.”

That second layer solution, called Lightning Network, was ultimately the scalability approach 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 fork, called 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.

The Lightning Network launched in March 2018 and has experienced significant growth. From November 2018 to December 2018, the network tripled its total capacity.

What Does the Future Hold for Lightning Network?

While growth within the Lightning Network has been encouraging, it may be some time before the network reaches critical mass in terms of adoption. 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, this process will become much easier and user friendly. 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.

Once this happens, true scalability will be in reach and Bitcoin will become faster and cheaper than traditional credit or debit card payments. 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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