2023-10-08 08:36:33
Bitcoin, in addition to its many advantages, has one negative, which prevents the coin from being widely used as a cryptocurrency for everyday use. And this is none other than the transaction processing time. The good news, however, is that some smart people put their heads together to create a solution for this, which we now know as the Bitcoin Lightning Network, or Lightning network in Hungarian. The shortcoming of the Bitcoin network The Bitcoin network (mainnet) can process 7 transactions per second. It takes 10 minutes to confirm them. The obvious solution would be to increase Bitcoin’s block size, allowing each block to contain many more transactions, increasing block processing per second (tps) and reducing transaction fees. But unfortunately, increasing the block size would put more burden on the miners, leading to centralization of the network (which is something strongly to be avoided) as fewer nodes would have enough storage capacity. The problem has become more pronounced as new blockchains with better transaction capacity have emerged, such as Ethereum and Solana. Ethereum’s 30 transactions per second (tps) and Solana’s 65,000 transactions left the Bitcoin network with no choice but to come up with some sort of solution. This is how Lightning Nework was born. How does LN work? Just as anyone can run a Bitcoin node, anyone can run a Lightning Network node by installing open source software. While the transfer can take up to an hour on the Bitcoin main network, it takes seconds on the Lightning Network. How is it possible? The Lightning Network is essentially an off-chain, i.e. off-chain, secondary transaction network. So the scalability barrier of Bitcoin’s network starts with the fact that the blockchain can process too few transactions at the same time. LN solves this by “taking the transactions out of the blockchain” (therefore off-chain), keeping security and anonymity aspects in mind. Since transactions are taken off the main blockchain and continued in layer 2 blocks, it makes payment much faster (almost instant), making it efficient for everyday payments. Transactions are carried out through a two-way consensus mechanism called a payment channel. LN grew out of the Bitcoin Segregated Witness (SegWit) update that went live in August 2017. SegWit not only improved the transaction storage of the Bitcoin blockchain, up to four times, but also restructured the malleability of Bitcoin transactions. By separating signature data from transaction data, SegWit paved the way for LN development. It then became possible to implement secure off-chain payment solutions, as the signature data might no longer be modified without changing the transaction identifier (TXID). Last but not least, the much-criticized energy consumption of Bitcoin is also positively affected by LN. By taking transactions off-chain, the Lightning Network reduces the energy required to operate nodes. This has significant sustainability implications, as the energy required to support said transactions is lower than if they were carried out on the Bitcoin network. The advantages of LN in summary: Lightning-fast, almost instantaneous transactions Negligible transaction fees: Using LN payment channels typically costs a few cents per transaction, compared to the high 3% fees of bank card companies. Global permissionless payment access: as there are no inter-bank intermediaries to block payments. LN simply connects to Bitcoin’s global peer-to-peer network, making it ideal for anyone who doesn’t have a bank account or wants to avoid a fragile central banking system. Enhanced Security: Because LN is an extension of the Bitcoin mainnet, settled transactions become as secure and irreversible as if they were using the Bitcoin mainnet itself. Enhanced data protection: Anytime information has a central repository, it is vulnerable to a data breach. Because LN relies on Bitcoin cryptography and the P2P network, not only is there no need to provide personal information, but Bitcoin wallet owners are the only ones who can authorize transactions.
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