Hackernoon logoWhat is the Lightning Network and how will it affect Bitcoin and Litecoin? by@Cryptonite

What is the Lightning Network and how will it affect Bitcoin and Litecoin?

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@CryptoniteCryptonite

Cryptocurrency & Tech Writer.

The Lightning Network has some “shocking” benefits

The Lightning Network promises to provide Bitcoin with instant payments, low transaction fees and cross chain transactions.

Some people believe this will have a negative effect on cryptocurrencies like Litecoin due to speed and low costs being seen as Litecoins competitive advantage.

In this post we will look at how Bitcoin using Lightning Network technology could affect Litecoin but before we get to that, we need to understand the Lightning Network itself as well as how Bitcoin and Litecoin function as currencies.

Overview of the Lightning Network

First of all the Lightning Network is not exclusive only to Bitcoin, Litecoin was one the first cryptocurrenies to activate this new technology.

The Lightning Network is a technology upgrade that will potentially allow instant transactions as well as instant micro-transactions, the instant transactions will be powered using smart contracts. Yes you read that right, smart contracts could be coming to Bitcoin.

Once the Lightning Network is implemented, Bitcoin’s transaction fees will be drastically reduced and we could have almost instant transactions (at the time of me writing this a Bitcoin transaction takes about 24 minutes on average to complete).

How Bitcoin functions as a currency

For the people who say Bitcoin can only be used as a store of value due to it’s limited supply, they may be forgetting that a Bitcoin is divisible just like a Dollar (USD /$), Euro (EUR/€), or Pound (GBP /£).

Dollars have cents, euros have cents as well and pounds have pence. You do not need a full dollar to purchase anything, you can use even as little as 1 cent or as much as 1 million dollars, the same principle applies to Bitcoin.

One Bitcoin can be divided into “Satoshis”, there are 100,000,000 satoshi’s (or “sats”) in one Bitcoin and 162 satoshi’s are currently worth around 1 cent (0.00000100 BTC).

Micro-transactions

Right now a Bitcoin transaction will cost you anywhere from $0.15 to $3.17 and since 162 Satoshi’s are equal to just over 1 cent, micro-transactions are currently impossible and the Lightning Network aims to change that.

Note: Fees were as high as $7 to $30 from December 2017 onward but as of February 2018 the fees have reduced due to less transactions on the network.

Instant transactions

The Lightning Network won’t require miners to validate transactions (due to smart contracts), the transaction will be carried out offline and the Bitcoin blockchain will record the transaction after it has been completed.

Removing the middlemen (Bitcoin miners) from the process will really make Bitcoin retail ready, you could buy a bar of candy for 16,213 satoshis (about 1 Dollar at the time of me writing this).

The transaction would happen instantly with the fees costing a lot less than than what you paid (maybe a fraction of a cent, this is just a theory based on previous research).

How this will affect Litecoin

Litecoin was one of the first cryptocurrencies to implement Lightning Network technology as well as Atomic Swaps which has a similar technology but is used for instantly exchanging Litecoin with other cryptocurrencies.

Lightning Network technology on the Bitcoin blockchain could actually help Litecoin and other Bitcoin related cryptocurrencies (Note: Litecoin was forked from the Bitcoin Core client).

First of all, Litecoins Atomic Swap technology will enable Litecoin to be spent anywhere Bitcoin is accepted.

For example imagine if fiat currencies had Atomic Swap technology, that would mean that a British person in New York would not have to exchange his pounds for dollars, he would pay using his pounds (GBP) which would instantly convert to dollars (USD) and vice versa.

Now heres an example using LTC/BTC, lets say you only own Litecoins and come across a small cafe that only accepts Bitcoin, no problem you simply use Atomic Swaps to convert your Litecoins to Bitcoin and then you buy your coffee!

The Lightning Network will really unleash Bitcoins potential as a currency and Bitcoin will not just be used mainly as a store of value, have you noticed that during last year (2017) a lot of big businesses such as Microsoft and Subway started to accept Bitcoin as a payment method? Especially since the Lightning Network rumours started. People are starting to get ready.

If successful, The Lightning Network will increase Bitcoin adoption worldwide and this could in turn increase Litecoin adoption as well.

I hope you found this post helpful, feel free to check out some of the useful resources below:

You can keep your cryptocurrencies safe and secure with a Ledger hardware wallet.

You can buy Bitcoin, Ethereum, Ripple, Bitcoin Cash, Bitcoin Gold, Dash, Zcash and Stellar Lumens from anywhere in the world using CEX

You can buy Bitcoin, Ethereum, Cardano, Qtum, Litecoin or Ethereum Classic from anywhere in the world using Coinmama

You can also keep up with me on Twitter.

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