With the evolution of Cryptocurrencies, many new technologies are also evolving to make the process easier. In this click here, when it is entering into a commercial stage, a fast speed transaction is a must. To keep up with the process, we cannot move forward only with the Layer-1 of Bitcoins. We need a 2nd layer to speed up the process of transaction. For this, we have a lightning network.
Bitcoin is evolving every day, the price of the assets are touching sky. In this scenario commercial use of Bitcoin has started taking off. So, it is very necessary to make it a big success. This can only be possible, if it can be done faster and cheaper. This was not possible earlier but after the introduction of the lightning network this seems possible. Let’s understand the concept and working of lightning networks.
What is lightning network
Lightning network is an added layer to the Blockchain paradigm of a Bitcoin for processing faster and cheaper transactions. This is done to make the scalability of Bitcoins possible. Without a lightning network only few transactions of Bitcoin can be done per second. With lightning networks almost millions and billions of transactions are possible even between two trusted parties outside of that Blockchain. This is how Bitcoins can take the place of traditional transaction methods.
To make any micro payment through Bitcoin, we need to pay a routing fee. In smaller payments miners have very low profits, hence they do not validate transactions faster. This can affect the process of scalability. While using a lightning network, the routing fee decreases and payment can process in seconds. This makes Bitcoin a good payment method even for smaller amounts.
A brief history of lightning network
Lightning network is a concept that has its history way back to 2015. It was proposed by two researchers, Thaddeus Dryja and Joseph Poon. In 2013, Mike Hearn published a conversation with the anonymous creator of Bitcoin ” Satoshi Nakomoto”. This conversation was about payment channels of Bitcoin. Thaddeus and Joseph based their research on this conversation and proposed a payment gateway which is like ” a payment channel within payment channels”. In simple language, the lighting network is a payment channel outside the blockchain of Bitcoin but guarded by the decentralised system.
In 2016, both launched a lightning lab to work on their proposal. Later, in 2018, a beta version of lightning network was launched for testing. Jack Dorsey, twitter founder also involved in this project to make this a hit.
Working of Lightning network in Bitcoin
Lightning networks open a peer-to-peer connection between two parties to process payments. For example, if you regularly visit your grocery shop, you can establish a payment channel with the shop. Every time you buy something, you can make a payment in Bitcoin. This will make your payment process inexpensive and faster.
After creating a channel, you can lock a certain amount of Bitcoin. To maintain the channel, you need to add Bitcoins consistently. In this system many payment systems are linked together with the main Blockchain. After ending the payment channels the individual payments are recorded in the main Blockchain of Bitcoin.
This not only helps in scalability but also makes the payment process cheaper and fast. Lightning network also maintains anonymity of both the parties.
Pros and Cons of Lightning network
The biggest advantage of using a lightning network is cheap and fast transactions. Making smaller payments of Bitcoin is not possible only by using Blockchain. Lightning network acts as a 2nd layer above Blockchain. It means with the advantage of cheap and fast transactions, you can also get high level security. For smaller transactions you can use a lightning network and to process larger payments switch to Blockchain. This swap can be done securely.
With all these advantages, the lighting network has some drawbacks. Even this network is for cheaper transactions but every time while pulling and reserving coins, a router fee is required. This becomes a hectic and expensive process. You also need to find a wallet which supports the lightning network for payment.
Lightning network is a necessary step for scalability of Bitcoins. To enter into more commercial space, Bitcoin needs to prefer cheaper and faster transactions. Along with security this network supports cheap and faster transactions too.