Over the decade Bitcoin’s community has been in a tight spot due to its scalability issue where the lightning network system could only process 7 transactions in a second which made the transactions take a long time and fees associated with them were over the odds.
There had been continuous restructuring to address the issue due to which several Bitcoin-like networks branched out but the sound consensus was yet to be attained.
However, there is a recent network development that is believed to be the solution to the scalability issue i.e. Lightning Network.
What is Lightning Network?
- This is a layer 2 payment structure that works efficiently on the top of the blockchain ecosystem. The cryptocurrency generally Bitcoin is expected to be benefitted from this introduction at large.
- It is decentralized networks that adhere to the functionalities of smart contracts and ascertain instant payments.
- It is assumed to ensure peer-to-peer high-speed payment protocols for micropayments amongst participating nodes in crypto environs through a two-way payment channel without any delegation of funds. At the same time, it is potent to simplify atomic swaps.
- The concept was first introduced and described in 2015 by Joseph Poon and Thaddeus Dryja in a white paper.
- In order to perform the transactions in bitcoin, it requires a transaction malleability fixation for layer 1 blockchain like Segregated Witness (SegWit).
- The transaction includes penalizing uncooperative participants using a time-based script like Check Sequence Verify and Check Lock Time verify. While opening a channel, participants are committed to transferring the required amount to their wallets.
- Presently there are three teams that collectively work for the development and operations of Lightning Network, namely Block stream, Lightning Labs, and ACINQ in accordance with inputs from members of the Bitcoin community.
How does Lightning Network work?
The dependency of the lightning network on blockchain technology and native smart contracts enables them to transact at high speed and volume considering the following procedural protocols.
- Initially, the creation of a wallet by the two participants involved in the transaction is needed.
- The transaction is required to be signed by the parties in order to broadcast it on the blockchain network, concluding the channel creation. Only the first transaction needs to be signed, after which it can be executed with just a click.
- Each participant ought to enter their transaction details either of payment or receipt in their respective ledgers and settle the transactions on the blockchain.
- In the absence of a cautious check for the transaction by the parties if the company gets accused then the payment can be docked.
Why say YES to Lightning Network?
- Instant payments: Blockchain payments can be fastened by the implementation of this network and with no worry of block confirmation times. The payment speed can be measured in milliseconds to seconds. The transaction can be completed by enforcement of secure smart contracts protocols
- Scalability: This network is potent of undertaking several million transactions just in a second. The functionality of pay per click can be witnessed now without any custodians in high magnitude.
- Low cost: The transaction and setting off in blockchain is charged exceptionally low which further allows the significant emerging of its application in numerous ways.
- Cross Blockchain: The occurrence of cross-chain atomic swaps can be observed owing to the heterogeneous rules. The validation of the crypto hash function in the network adds icing to the cake by making transactions possible without any third-party involvement.
- Granularity: It is expected that the appropriate implementation of the network would allow micropayments that are smaller than Satoshi and fees would frequently be dominated in millisatoshi.
- Privacy: The transactional details in this network are not shared on the blockchain’s public network. Though the transactions get routed through sequential channels yet the node operator would neither be able to see the source nor the destination of the transactions.
Limitations of Lightning Network
- The bidirectional payment structure of the lighting network gives rise to smart contracts which means at any given time if any of the parties close, the channel will be off for all in the blockchain.
- The dispute mechanized nature of this network is required for all provided users to observe the blockchain consistently for fraud. These phenomena can create space for a “watchtower” where the trust can be outsourced to monitor fraud.
- The payment routing is the noticeable limitation of this network as it happens using an onion routing technique just like Tor.
The lightning network is expected to be the solution for the gaps in the existing crypto and largely blockchain ecosystem.
Since the implementation of such network mode is awaited, the same stipulated time can be utilized to bridge the gaps that limit the scope and acceptability of the lightning network.
Although nothing can be the full-fledged answer to the problem in the IT field yet practically there can always be a better answer to the problems. Thus, the lightning network is seen to be that big better answer.