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What is Bitcoin Lightning Network?
Traders Magazine Online News, June 6, 2019
We are all aware of the huge potential associated with the cryptocurrency market, yet before mass-adoption can happen, there are still several problems that need to be figured out.
Apart from figuring out the correct way to regulate and tax cryptocurrencies, there’s another pressing issue that’s desperately looking for a solution — scalability. Simply said, scalability stands for a coin’s potential of serving the masses.
Just like billions of cash-based transactions are made on a daily basis, the underlying systems of Bitcoin and other coins should be able to quickly process as many transactions as the network requires.
Concerns on Bitcoin’s potential of handling a large number of transactions became overwhelming and led to the heated block size debate, concluded with Bitcoin’s first hard fork.
Despite several forks so far, it seems like no version of Bitcoin has managed to create a system capable of quickly handling millions of transactions. To put things better into perspective, according to the infographic linked earlier, it takes approximately 78 minutes for a Bitcoin transaction to get fully confirmed.
Bitcoin Cash is doing a little better, with 60 minutes required for confirmation. Ethereum seems to be the fastest of them all, granted that transactions are fully confirmed after six minutes.
Lightning Network Comes to the Rescue
Fortunately, developers recently came up with an incredible idea - the Lightning Network. The system was brought on by a simple change in perspective regarding the way cryptocurrency transactions are made.
In the case of regular transactions, each transaction is verified for authenticity and then added onto a block which is then linked to the chain. However, Lightning Network is different, since it allows users to set up direct payment channels between one another.
By using a secured payment channel, users can make as many transactions as they’d like to one another (which confirm in seconds). Fees are minimal, and the channels can last forever.
Once the users would like the transfers to be fully confirmed, the payment channel needs to be closed. Only then does the mining network burst into action to verify and update the blockchain.
As such, the solution is perfect for use cases when multiple transactions need to be sent to the same person or business entity. For one-time, separate transactions, the Lightning Network doesn’t offer much of a benefit.
However, reports indicate that in the future, the network won’t require users to set up a separate payment channel every time they transact. Rather, the network will route transactions even to people that you don’t share a channel with by taking advantage of other opened channels that you share with others.
Statistics showcase that the new development can support millions to billions of transactions on a daily basis at a much lower cost.
At the moment, the Bitcoin Lightning Network is still a work-in-progress, and it will likely take several more months or even years before a beta version becomes available to the public. What matters most is that solutions to the scalability issue exist and are being worked on.
With this problem out of the way, digital currencies are one step closer to transforming the world’s financial system.
Jovan Milenkovic is Head of Content and Gambling Auditor at Pokersites.me.uk.
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