lightning network

What is Lightning Network?

The Lightning Network is a decentralized network built on top of the Bitcoin network, allowing peer-to-peer, immediate, and virtually free payments. It is the solution of choice to solve Bitcoin’s scalability problems. Although still in the development phase, it is currently deployed on the leading network and is growing day by day.

The amount of transactions that can be carried out on the Bitcoin network is limited by the size of the blocks, which cannot currently exceed 1 M.B. This is not a problem when usage remains low: all new transactions are validated and included by the miners in the next block so that a transaction will be confirmed in about 10 minutes.

However, during peak usage, it regularly happens that the limit is reached, and the blocks are full. As miners seek to maximize their profit, they prioritize payments with the highest fees. This creates a bidding mechanism, which results in higher transaction costs and longer confirmation times for the users. For example, this happened in December 2017, when the median fees exceeded 10 euros and confirmation times could be counted in days!

To solve this problem, the simplest solution would be to increase the block size limit, as other cryptocurrencies do. However, a large part of the community prefers not to use this solution to preserve the maximum decentralization of the network. Instead, Bitcoin developers prefer to scale out of the chain, which will be done through many solutions, including the popular Lightning Network.

lightning network

The Lightning network is based on so-called two-way payment channels. These use smart contracts programmed using Bitcoin’s scripting language. They allow repeated payments to be made between two people without them having to pay transaction fees.

The use of the Lightning network is increasing. Today the Lightning network has more than 12,000 payment channels opened by more than 3,500 nodes. Its total capacity is 115 bitcoins. If you want to learn more about how does the Lightning Network work, how to use it, and how it can solve the scalability problem of Bitcoin, read this article.