Lightning Network Could be a Tool to Overcome Limitations by@digitaltime

Lightning Network Could be a Tool to Overcome Limitations

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Lightning Network is a payment protocol operating on blockchains. Allows instant transactions between participating nodes and is proposed as a solution to the bitcoin scalability problem. The Lightning Network is made up of nodes and bidirectional payment channels.

Problems as Prerequisites for Creation

The Lightning Network concept was created by Joseph Poon and Faddus Dryya in 2015. The main idea of ​​the project is to develop a payment protocol that can be used as a non-chain solution to the scalability problems faced by the Bitcoin blockchain, but the concept can also be applied to other cryptocurrencies.

Blockchain technology is great in itself, but, unfortunately, it is not suitable for personal transfers of funds among themselves. If only because the transaction will take a long time, and the commission for it will be significant, especially with an increase in the price of bitcoin.

When funds are transferred through the blockchain, the transaction is queued with other requests. It is processed by miners and written to a block, and then distributed to nodes around the world. For some transfers of cryptocurrency among themselves, such a set of actions is unnecessary and meaningless, especially if small amounts are transferred.

If Alice has agreed to transfer 0.01 BTC to John, she does not have to notify the whole world about this and wait a while for the transaction to be completed. Alice sent the money instantly, but the processing will take some time. John will receive his 0.01 in a few hours or even days at best. Paying a commission of 0.001 BTC, which is quite expensive, 1/10 of the transfer. 

This is just a rip-off for small transfers. It is not very convenient from the point of view of time and commission costs, and for the blockchain, such actions are redundant.

The Essence of the Concept

The Bitcoin network was created in such a way that it can process 7 transactions per second. The increase in the number of operations per unit of time or scalability is not foreseen by the protocols. 10 years after the launch of the first cryptocurrency, bandwidth has become insufficient. Due to the large influx of users, the network is slow to confirm transactions. And at peak times, commissions for users increase significantly.

To compete with modern payment systems (such as Visa or MasterCard), Bitcoin must accelerate to at least 24,000 payments per second. At the same time, the maximum capability of the Visa system is at the level of 50,000 transactions per second.

The Bitcoin Lightning network is currently under development. The goal of the project is to speed up transactions between Bitcoin users without compromising security. Also, the organizers focus on even greater decentralization than in the cryptocurrency network itself.

The essence of Lightning Network technology is that it produces off-chain transactions. That is, operations take place outside the blockchain. The blockchain only records the initial and final results in the payment channel. Due to the fact that every single transaction does not require a write to the main network blockchain, transfers are made instantly.

To perform these actions, you only need to open the same payment channel. It can be used multiple times between users and does not require additional fees for each transfer.


Network Application

The main area of ​​application of the Lightning Network technology should be cryptocurrency platforms. On some platforms, it is possible to transfer funds between registered users quickly and without commission. However, the Lightning Network could act as a processing service between crypto exchanges and transfer funds between crypto wallets without the need to write data to the blockchain.

This allowed exchanges to increase the trading volume, users make payments quickly and cheaply, and the cryptocurrency rate on different sites and platforms would become approximately the same, corresponding to the average prices.

The scope of the Lightning Network is vast. In theory, it could be used for instant payments in applications or online games. In addition, the technology can work not only with bitcoin. It can be applied on different blockchains, including Ethereum, Litecoin, and others.

However, it should be noted that the popularity of the Lightning Network is growing. The number of nodes and nodes supporting this technology is also growing. More and more payment channels are opening up. 

Now we can safely say that Lightning has greatly helped the Bitcoin network in reducing the load on the network. The commission has decreased, and the transaction processing speed has increased, even for those who do not use this technology.

And the registry of the leading cryptocurrency now does not process or record a lot of statistical data that sometimes users do not need at all. In the future, Lightning Network technology may become, if not the main, then the leading one in the blockchain field.

Big Data: closer than You think