Bitcoin was released in 2009. Since then, the community of people interested in Bitcoin has continued to grow. However, there have also been criticisms of Bitcoin since its inception, such as the lack of scaling options, potentially expensive fees on the main network and the lack of privacy in payments. The so-called Lightning network was ultimately created to address these problems. The Lightning Network was first proposed and developed in 2015. However, there were different stages of development. The implementation and introduction took place gradually over the years.
What is the Lightning Network?
The Lightning Network is a so-called "second layer" or "off-chain" solution for the Bitcoin network, which was created, among other things, due to the blockchain trilemma.
Blockchain trilemma
The blockchain trilemma describes the fact that a distributed database, such as Bitcoin, can only maximize two of the three properties of security, decentralization or scalability. It is considered impossible for a blockchain to be decentralized and secure and still be extremely scalable.
If a blockchain attempts to scale by increasing the size of the blocks in the blockchain, the costs of operating a so-called fullnode (a computer that stores the entire blockchain and validates the transactions) increase. The larger the blocks in a blockchain, the greater the bandwidth, processing and storage requirements for each individual full node. Increasing the transaction capacity and the associated increase in the size of the blocks would have the undesirable effect of centralizing the system, as only large companies and no private individuals could afford to operate a full node.
Blockchain and Lightning easy to understand
Imagine the Bitcoin network as a classroom filled with students. If you want to send a classmate a Bitcoin, you both stand up, tell all the other students that you want to make this transaction, and all the other students will write this transaction down in their notebooks. This is therefore not only time-consuming, but also expensive and is not really anonymous. If you want to use the Lightning Network, think of it as telling all students that you and your classmate will be leaving the classroom. All students write down how many Bitcoin you and your classmate leave the classroom with. Outside of the classroom, you can now send transactions to your classmate and back billions of times per second, without any fee, without anyone knowing. When you decide that you no longer want to transact with your classmate, you both come back to the classroom and tell all students how many Bitcoin you each have left. Now all students write this down again.
How does the Lightning Network work technically?
At its core, the Lightning Network enables transactions to be carried out outside of the blockchain. This is done by opening a so-called “payment channel” between the parties involved. Instead of writing every single Bitcoin transfer to the blockchain, users can make a series of transactions directly between themselves and share the transaction data with each other. Only when the payment channel is closed is the final transaction data written to the blockchain.
Advantages of the Lightning Network:
1. Speed : Transactions on the Lightning Network are implemented almost instantly, in contrast to the slower transaction times on the Bitcoin blockchain.
2. Cost efficiency: Since transactions are carried out outside the blockchain and no proof of work in the form of mining is required, fees are significantly lower in the cent range.
3. Scalability: The Lightning Network allows Bitcoin to process a much larger number of transactions without overloading the blockchain. Technically, Lightning does not have a maximum number of transactions that can be made per second.
4. Micro-transactions: The Lightning Network opens up new possibilities for micro-transactions, as transactions can theoretically be carried out in cents and every second. An example is streaming for Bitcoin podcasts, which are billed in Satoshis per second.
5. Privacy: Since transactions occur off-blockchain within private payment channels, they are private and are not publicly recorded.
How to use the Lightning Network?
To use the Lightning network, you need a Lightning-enabled Bitcoin wallet such as the Wallet of Satoshi or the Phoenix Wallet, which can be downloaded from the Android or Apple store. These wallets support sending and receiving payments via the Lightning Network. Once you have such a wallet, you can send and receive payments to other Lightning users.
Is it already used a lot?
The use of the Lightning Network has become increasingly widespread in recent years. Especially in countries where people are suffering more from the current monetary system, they are looking for alternative payment methods. One example is the people from El Salvador, many of whom work in the USA and whose remittances back home make up a large part of El Salvador's gross domestic product. Until now, these people had to rely on expensive channels such as Western Union, whereby the transactions not only sometimes included 20% fees, but also took several days. With Lightning, these people now have almost no fees when sending the money they have earned, are not dependent on a third party like Western Union and can send money to their home country peer-to-peer within a second.
Challenges and future prospects:
Although the Lightning Network is promising, there are still some challenges ahead. These include the ease of use of wallets, the reliability of payments and acceptance by the general public. Nevertheless, developers around the world are continually working on improvements to make the Lightning Network even more robust and beginner-friendly.
Conclusion:
The Lightning Network is an exciting development that has the potential to make Bitcoin an even more useful and versatile means of payment. Through its ability to make transactions fast, inexpensive and scalable, the Lightning Network could make a major contribution to the further adoption of Bitcoin as money.
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