The Bitcoin Lightning Network was created to fix that Bitcoins scaling problem. Bitcoin has difficulty efficiently handling large transaction volumes, resulting in high transaction fees and long waiting times. Blockchains like Bitcoin often struggle to balance the three desirable blockchain properties of decentralization, security and scalability and often rely on “Layer-2” networks to improve their scalability.
Bitcoin’s creator, Satoshi Nakamoto, identified this problem in 2013 and proposed a solution involving off-chain payment channels between recipients. In this design, BTC will be inserted into an off-chain network where individuals can open payment channels and send invoices to each other without dealing with the blockchain. Individuals can then withdraw their BTC from the network and back into their Bitcoin wallets after everything is settled. An off-chain network will be able to send small amounts of BTC (like what is required for a coffee) almost instantly without blockchain gas fees, while an on-chain BTC transaction can take up to an hour to fully settle and can cost an unpredictable ( and significant) amount of BTC in gas fees.
CoinTelegraph describes the Lightning Network as similar to Satoshi’s design, where participants deposit their BTC into the network’s BTC wallet after opening an account. Once they have an account, they can open payment channels with other accounts on the network and send or receive invoices through the payment channels. When the parties close their payment channels, the final balances are sent as a single transaction to the Bitcoin network, which is then settled by the Bitcoin miners and added to the blockchain’s history. The result is a second-tier scaling solution that allows microtransactions that avoid overloading the blockchain while leveraging security.
The Lightning Network fixes Bitcoin’s problems, but also has its own
The main advantage of the Lightning Network is that it makes BTC transactions fast and cheap. Because all transactions are processed through an off-chain network and only settled when accounts are closed, they happen almost instantly and with almost no fees. This makes BTC useful for microtransactions and payments, allowing it to be used for its intended purpose as digital cash.
The downside of the Lightning Network is that it offers disadvantages, opportunities for fraud and a few bugs. For example, users must pay a “routing fee” when opening a new payment channel, and they cannot withdraw partial funds from a payment channel without closing the entire channel. This makes withdrawing Bitcoin more difficult. There is also the possibility for a Bitcoin fraudster to commit fraud by shutting down a payment channel when the victim is offline. The Lightning Network also suffers from stuck payments, which can take days to clear. Finally, the Lightning Network could run into trouble with regulators due to its anonymity, as all transactions are anonymous due to taking place off the blockchain.
The Lightning Network has seen greater adoption recently, with implementations from giants like Twitter and Cash App. While the issues are being worked out, the result is far superior to Bitcoin’s base layer for basic transactions that people use every day. Because Bitcoin suffers from glacial speed and can turn a $5 coffee payment into a $55 bill, the Lightning Network is hugely beneficial to BTC’s use as an alternative payment method that allows Bitcoin to fulfill Satoshi Nakamoto’s original vision.
Source: CoinTelegraph
