What is Bitcoin’s Lightning Network?
What is it and how does Bitcoin’s Lightning Network work? A simple guide to the crypto queen’s second tier, made to improve the scalability of transactions on the Blockchain.
Bitcoin’s Lightning Network: what is it and how does the second layer work?
Bitcoin’s Lightning Network was created for that purpose improve the scalability of Blockchain transactionsand becomes the second layer most accepted by the crypto community.
In fact, the scalability of Blockchain has been a major obstacle to the mainstream adoption of cryptocurrency from its inception. Therefore, the second layer has become the solution.
The Lighting Network intervenes by handling transactions outside of the Blockchain network, while still benefiting from the mainnet’s powerful decentralized security paradigm.
In practice it is enabling off-chain transactionswhich means transactions between parties that are not part of the blockchain network, create multiple payment channels between parties or BTC usersand thus constitute the second layer.
By exiting the official chain, Lightning Network can scale Bitcoin transactions per second (or TPS), charge lower fees, and enables new use cases such as micropayments. Not only that, the other team wanted too reduce energy costs associated with Bitcoin’s Blockchain.
Bitcoin’s Lightning Network: the story of layer 2
Thaddeus Dryja and Joseph Poon were the first two developers to suggest “The Bitcoin Lightning Network,” in 2015, took inspiration from the descriptions of payment channels created by Satoshi Nakamoto (the creator of Bitcoin himself) published in 2013.
In the paper, in addition to describing the off-chain protocol for instant BTC payments, Dryja and Poon explained how the second team was able to increase Bitcoin’s TPS, taking as an example the peak of 47,000 TPS reached by Visa in 2013.
In this regard, the Lightning Network’s off-chain payment channels were actually created to solve Bitcoin’s lack of scalability, as the channels allow multiple smaller transactions without overloading the network.
Not only that, Dryja and Poon and other collaborators founded Lightning Labs in 2016, a company completely dedicated to the development of the Lightning Network. After the soft fork of Bitcoin based on SegWit in 2017, pre-launch tests confirmed the possibility of creating applications on the Lightning Network, such as wallets and gambling platforms.
In 2018, Lightning Labs finally launched a beta version of the Lightning Network implementation in the Bitcoin mainnet, involving public figures. And actually former Twitter boss Jack Dorsey including Bitcoins Lightning Network as a tip payment on the social network in 2021.
Peer-to-peer payment channel on the Lightning Network
The Lightning Network (LN) protocol allows users create a peer-to-peer payment channel between two parties. This channel allows an unlimited number of transactions, even micro-amounts, to be sent, almost instantaneously and affordably.
Open an LN the channel requires the party to make the transaction to block a certain amount of BTC in the network. Only then will it be possible to scale the quantities each time a transaction is made to the counterparty. Within the channel, the parties can trade with each other.
Each channel is registered on the Bitcoin blockchainwhile transactions within it can take place off-chain, validated by Lightning Network nodesthus recorded in the LN ledger, and therefore without informing the main blockchain.
The parties opening the LN channel create a smart contract that contains the codified rules of the agreement, which cannot be broken. The smart contract ensures automatic fulfillment of the predefined requirements that have already been accepted by the parties.
Bitcoin’s LN capacity: surpassed the record of 5000 BTC
The capacity of Bitcoin’s Lightning Network is the number of BTC locked in the network. To be clear, this is the BTC used by parties opening their peer-to-peer payment channels.
At the time of writing, Bitcoin’s Lightning Network has been destroyed his new record, bringing the capacity above 5000 BTCequivalent to almost $99,000.
#Lightning network observed:
17,865 nodes
86,448 channels
5,017,747 BTC capacity ($97,994,688)median node capacity: 0.005 BTC ($97.65)
last 24 hours:
+1 Nodes +5 Channels +0.260 BTC ($5,083)#Lightning #LN #bitcoin $BTC— Lightning Network Stats ⚡ (@LNstats) 17 October 2022
“ observed: 17,865 nodes, 86,448 channels, 5,017,747 BTC capacity ($97,994,688), median node capacity: 0.005 BTC ($97.65). Last 24 hours:
+1 nodes +5 channels +0.260 BTC ($5,083).”
This is an additional 200 BTC locked in the Lightning Network compared to last month’s 4,800up from 4500 BTC two months ago.
This means the trend of LN use continues to increaseand that these BTC can be used in the second layer, which makes for faster and cheaper transactions.
