Bitcoin (BTC), the world’s most sought cryptocurrency, has been among us since 2009, but its real traction came during 2018, when it first reached $20,000 and again touched a new high of over $67,500 in November 2021.
Even though it is the most popular cryptocurrency in the blockchain ecosystem, there are various issues faced by users for transacting on the Bitcoin platform, like high energy usage, slow transaction rate and high transaction costs.
There were various crypto projects forked from Bitcoin to solve these issues, but only a few are still alive today, one such as Bitcoin Cash. In November 2018, Bitcoin Cash was further split into two cryptocurrencies namely Bitcoin Cash and Bitcoin SV.
But, it was the Lighting Network that has been designed to solve all the problems that Bitcoin is facing today.
When Bitcoin was released, the mysterious developer Satoshi Nakamoto handed over the project to the community in 2010 and left it. It is still not yet known where Satoshi is now.
In order to strengthen the Bitcoin blockchain in 2015, two developers Thaddeus Dryja and Joseph Poon conceived the Lighting Network service to be built on the existing platform.
Pegged as a game-changer for Bitcoin, it is still under development and is expected to launch in the upcoming months.
After the implementation of Lightning, it will speed up transaction processing times and decrease the associated costs of Bitcoin’s blockchain platform.
What is Lightning Network?
Lightning Network is a layer 2 protocol built on top of the Bitcoin network, meaning it is built separately from the Bitcoin network but interacts with it.
The service allows people or companies to move money from one user to another user without the need to use the Bitcoin blockchain to verify the transaction.
It works just like making payments using your debit and credit cards, which verify the funds of the buyer and give a green signal to the seller. Though settlement takes some time, at this point, both buyer and seller are satisfied.
Benefits of using the Lightning Network
Instant payment: Lightning Network helps to make instant transactions on Bitcoin, against transactions made on the current Bitcoin network that takes around two minutes to seven minutes to confirm the transactions. That is very slow when compared to other blockchains.
Transactions that are done on Lightning Network just take milliseconds to confirm, as it is not verified by any Bitcoin nodes.
Micro-payments: With Lightning Network, users can make very small payments, which is currently not possible due to higher transaction fees on the current Bitcoin blockchain. This happens because Lightning Network removes miners from the system.
Cross-chain payments: The lightning network incorporates technologies of other blockchains that have similar hash functions and allow users to send funds to different chains without trusting a third-party service such as an Exchange.
Security & Privacy: Lightning network uses Hashed Timelock Contract (HTLC) technology to lock Bitcoins in a multi-signature wallet. This protects both parties in a payment channel from any malicious transactions.
For any transactions, the payment channel must be closed and the balance paid to both parties. Apart from that, transactions that use the Lightning nodes are not published on the public blockchain, so it’s really hard to trace any of the transactions.
Lower transaction costs: Today, small businesses have to pay over 2% to 3% as transaction costs to vendors, suppliers, and other payments, which can be saved, if these businesses use Lightning Network for all their transaction needs.
The percentage might be small, but if that is calculated on the global level, it can reach considerable amounts.
Less energy usage: To mine a Bitcoin, a huge amount of electricity is needed. According to an estimate, over 263 TWh was used in 2021 for mining Bitcoin.
The power capacity utilization is huge; in some cases, it is more than a few countries’ consumption per year. Lightning Network solves this because it uses less energy and is designed to work on a peer-to-peer network, leveraging other people’s existing connections.
Secondly, built as a second layer, it supports off-chain transactions and does not use the computational power necessary to confirm blocks on-chain or upload transactions to the blockchain (the first layer).
Testing of the Lightning network
On 19 January 2019, a promotional event testing Lightning Network started by sending 0.0001 BTC (100,000 satoshis) to some of the trusted recipients, where each recipient would add 10,000 from their own side and send it to the next trusted recipient.
Known as the Lightning Torch, it passed through 292 times and the final payment of 4,290,000 satoshis was donated to Bitcoin Venezuela, a not-for-profit organization that promotes Bitcoin in Venezuela.
The participants of the torch include ex-Twitter CEO, Jack Dorsey, Litecoin creator Charlie Lee, Lightning Labs CEO Elizabeth Stark, Binance CEO Changpeng Zhao, and others.
Dorsey, in a virtual meet in 2021, has said that Lightning Network can also scale transactions on the Bitcoin network by many folds, making it one of the most used platforms for peer-to-peer money among users.
Before this lightning torch, Christian Decker of Blockstream made the first payment on a non-test network and settled it in a fraction of a second on the Litecoin network, which is also being developed on Bitcoin code.
When El Salvador announced Bitcoin as legal tender from September 2021, the decision was based on the success of the Lightning Network used in El Zonte, a town in the La Libertad Department.
The government has introduced the Chivo Wallet which uses the Lightning Network protocol for sending tinier payments among citizens.
El Salvador is not the only nation with Bitcoin as legal tender. Recently in April 2022, the Central African Republic has also accepted Bitcoin as legal tender.
This provides huge scope for Lightning Network to be adopted on a large scale and makes it an alternative to traditional finances today.
All that being said, it’s fair to say that Lightning Network definitely needs faster and a Klever adoption around the world in order to bring significant changes to Bitcoin’s growth.