In this article, we will explain what the Bitcoin Lightning network is and how it is used.
Scaling the Bitcoin network
Although Bitcoin (BTC) is now the most popular cryptocurrency in the world, in 2008, no one expected it yet. This is the year of the manifesto written by Satoshi Nakamoto, which is taken to be the year the Bitcoin network was founded. A lot has changed since then, and Bitcoin, with its growing number of users, has encountered various problems, including scalability.
What is scalability?
Scalability is a measure of how well a system performs by handling more requests than before. In the case of Bitcoin (BTC), there has been a dramatic increase in the number of users over the past few years. This has resulted in the maximum possible load on the network, thus reducing its capacity. Bitcoin’s scalability problems are mainly due to the use of the Proof of Work algorithm. In this network, one block is never larger than 1 MB. The processing time for one block is about 10 minutes. After this time has elapsed, a so-called consensus occurs, which means that the most likely block is stored in the chain. It is this long processing time per block that makes Bitcoin so hard to scale. Developers are constantly looking for new solutions to deal with this problem. One of these solutions is the Lightning network.
Bitcoin Lightning Network – what is it?
Lightning Network is often associated with a kind of overlay on the Bitcoin (BTC) network. It can also be described as an additional memory where transactions are waiting to be written on the blockchain, i.e. the blockchain. By implementing the Lightning Network, we no longer have to wait for a transaction to be processed. In a nutshell, Lightning Network is a cryptocurrency payment protocol that uses two-way payment channels to perform micropayments, using a P2P (peer-to-peer) system. The aim of Lightning Network is to implement secure and fast payments (security is provided through the use of Smart Contracts, which you can read more about here).
Analogy between Bitcoin Lightning Network and payment cards
Of course, we are aware that the previous paragraph is hard to understand being only at the beginning of exploring cryptocurrencies. Therefore, we decided to use some analogy with the real world, namely – payment cards. Lightning Network is in fact such a “payment card”, but for the blockchain network. Firstly, a payment card cannot exist without a bank. The same is true for Bitcoin (BTC) and the LN. The Lightning Network cannot exist without the Bitcoin network. Secondly, payment is enforced immediately. In the case of a payment card, specific funds are blocked in a bank account. In contrast, with the Lightning Network, the transaction is stored in memory and waits to be processed, i.e. written to the blockchain.