Introduction to Lightning network: what you need to know

The Lightning Network adds another layer to Bitcoin’s blockchain and enables users to create payment channels between any two parties on that extra layer.
Introduction to Lightning network: what you need to know

When Satoshi Nakamoto first proposed Bitcoin in 2008, James A. Donald offered the first public remark on the system, saying, “the way I interpret your concept, it does not seem to scale to the requisite size.”

Scalability is still the largest issue for Bitcoin and other seasoned cryptocurrency systems ten years later.
The Bitcoin community has come up with a number of proposals to increase Bitcoin’s scalability throughout the years, but no overall consensus has been established.

As a result, multiple Bitcoin-like networks have splintered off from the original. However, there is one proposed method that is now being evaluated and may just work. The Lightning Network is what it’s called.

What is the Lightning Network, and how does it work?

Sending a telegram was, at one point in history, the quickest and most effective method of long-distance communication. To do so, you had to travel to your local post office, fill out a form, and pay based on the number of letters in your message.

The message would then be telegraphed to the nearest telegraph office, where it would be sent to the far end. The telegraph would subsequently be delivered to its intended recipient by a postman.

Basically, sending a simple brief message involved a large number of individuals, and you had to pay a significant sum of money to do so.

That’s very much where the Bitcoin network is right now. In this example, the Lightning Network is similar to having contact on a fast dial: all you have to do is push “1,” and your friend’s phone will begin to ring.

What does it mean to be scalable? Bitcoin, on the other hand, has only been able to execute about 7 transactions per second throughout its history. While this was sufficient at first, the system has been clogged for several years. As a result, transactions take a long time to complete, and transaction fees are astronomically high.

Bitcoin will need to be able to compete with existing payment methods if it is ever to become a full-fledged alternative to them. It’s not even close right now.

Simply compare Bitcoin’s minuscule 7 transactions per second to Visa’s average of 24,000 and peak capacity of nearly 50,000 transactions per second to see the gravity of the matter.

Simply expressed, the Bitcoin Lightning Network’s concept would have sounded like this: we don’t need to preserve a record of every single transaction on the blockchain.

The Lightning Network, on the other hand, adds another layer to Bitcoin’s blockchain, allowing users to construct payment channels between any two parties on that extra layer.

These channels can last as long as they’re needed, and because they’re set up between two people, transactions will be nearly instantaneous, and costs will be minimal, if not non-existent.

What is the mechanism behind it?

Danny and Jon are introduced, they might be coworkers, cousins, or a partner; the point is that they need to send money to each other frequently, swiftly, and with low fees. As a result, they created a Lightning Network channel.

To begin, they must build a multi signature wallet, which is a wallet that both of them may access using their private keys.

Then they each deposit a particular quantity of Bitcoin into that wallet – say, 3 BTC each.
They will be able to conduct unlimited transactions between them from then on. These transactions are essentially redistributions of funds held in the shared wallet.

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For example, if Danny wishes to send Jon 1 BTC, she must first transfer ownership of that amount to him. The two of them then sign an updated balance sheet using their private keys.

When the channel is closed, the monies are actually distributed. The algorithm determines who gets what based on the most recently signed balance sheet.

Danny will receive 2 BTC and Jon will receive 4 BTC if Danny and Jon opt to shut the channel after that one transaction.
The information regarding the channel’s beginning and ending balances is broadcast to the Bitcoin blockchain only after the channel is closed.

The Lightning Network operates by allowing users to make many transactions outside of the main blockchain before recording them as a single transaction.

The most interesting aspect of this is that, once the technology is widely accepted, you won’t even need to set up a specialized channel to transmit money to a certain individual.

Instead, you’ll be able to give money to someone through channels with whom you’re already acquainted. The technology will calculate the shortest route for you.

This is how the Lightning Network could one day provide a solution to the never-ending controversy over buying a cup of coffee with Bitcoins.

It appears that doing so through the Lightning channel network might just work, as it will be a near-instance purchase with no costs.

Security. It’s worth mentioning, however, that the Lightning Network’s premise implies that the system would run on top of the blockchain but will not have its own security.

As a result, it’s extremely possible that it’ll be utilized mostly for little or even microscopic transactions. Larger transactions requiring decentralized security will almost certainly continue to be handled on the original layer.

Finally, cross-chain atomic swaps, which are token transfers between various blockchains, are an interesting aspect of the Lightning Network that is now being explored.

Simply put, it is a method of converting one cryptocurrency to another without the use of cryptocurrency exchanges.

In the end, this technology may render centralized cryptocurrency exchanges, as well as the trouble of trading on them, obsolete. The first test of trading tokens between the test blockchains of Bitcoin and Litecoin was a success.

Who created it?

Joseph Poon and Thaddeus Dryja first described Lightning Network in a white paper published in 2015; the most recent version of the white paper can be accessed here.

Blockstream, Lightning Labs, and ACINQ, with input from other members of the Bitcoin community, are now carrying out the majority of the work on the Lightning Network’s development.

Each of the aforementioned startups is developing its own Lightning Network Protocol implementation in various programming languages.
In addition, there are various implementations in the works. The complete list may be seen here. Finally, recent tests have shown that the three primary implementations are fully interoperable, which means they can communicate with one another without difficulty.

What will it be used for, when will it be used, and why will it be utilized?

The cryptocurrency community appears to be anticipating the introduction of the Lightning Network with bated breath. It was created with Bitcoin in mind, but the technology is now being developed for a variety of other cryptocurrencies, including Stellar, Litecoin, Zcash, Ether, and Ripple.

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Users should also be patient, as the network’s programming is sophisticated and requires extensive testing, according to the developers.

The Lightning Network will have to prove itself secure and usable before it can be completely adopted by the Bitcoin community. With these and a slew of other things in mind, experts estimate that a fully functional Lightning Network might take anywhere from a few months to a couple of years.

The answer to why the network will be used is straightforward: scalability. If the network succeeds in solving Bitcoin’s core problem, it will very certainly be adopted by other cryptocurrencies.

If this occurs, cross-chain atomic swap technology may be further developed, representing a first step toward the creation of completely decentralized cryptocurrency exchanges.

Real Bitcoin has been transmitted and almost always received using Blockstream’s, Lightning Labs’, and ACINQ’s implementations, demonstrating that they are all compatible.

Furthermore, the first edition of the lightning specifications, which outline the network’s rules, has been released.

These standards are a big step forward for the network because they can be used by application developers and for the Lightning Network to be implemented in different programming languages.

However, the network is still in its early stages. There is currently no software that allows real-life casual users of the network to conduct transactions.

Furthermore, the current implementations are still prone to flaws. Developers of the Lightning Network have recommended people learn about the network on the Bitcoin testnet before sending any real money.


The Lightning Network, as previously said, is still in its early stages. It’s still in the early stages of development, and it’s unclear whether it’ll work as well as the developers hope. If it does, these are some of the most critical Lightning Network advantages you may take use of:

Transaction speed is important. Once the network is operational, you won’t have to wait for many confirmations for each transaction. No matter how busy the network is, the transactions will be almost instantaneous. If this occurs, the bitcoin market will take significant steps toward competing with existing payment systems such as Visa, MasterCard, and PayPal.

Fees for transactions. Because the transactions will take place outside of the blockchain and within the Lightning Network channels, you will only have to pay the tiniest fees, if any at all.

One of the key benefits of the Lightning Network is that it will allow Bitcoin to be used as a method of payment at shops, cafes, bars, and other establishments.

Scalability. The Lightning Network is reported to be capable of boosting Bitcoin and other cryptocurrencies’ transactions per second to unprecedented levels of at least 1 million transactions per second.

Atomic exchanges across chains. The initial cross-blockchain transaction tests were successful, which is quite exciting. Users will be able to transmit money from one blockchain to another without having to trust a third-party intermediary, such as an exchange, as long as the two blockchains use the same cryptographic hash function (which most large ones do). This technology has the potential to be genuinely transformative.

Anonymity and security. The vast majority of cryptocurrencies do not offer complete anonymity. From one wallet to the next, the transitions can still be traced. However, because most Lightning Network transactions take place outside of the main blockchain, any micropayments made over Lightning channels will be nearly hard to track.

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It is not yet completely functional. Perhaps the biggest disadvantage of the Lightning Network right now is that it isn’t completely operating yet, so it’s impossible to say how good it really is. Furthermore, the concept seems excellent on paper, but it’s impossible to know whether it’ll look as good in reality.

The channel’s complexity. The Lightning Network is envisioned as a system of channels that, if built, should theoretically enable frictionless transactions to take place. However, there is no way of knowing what will happen if the payment must travel a circuitous route. Fees will undoubtedly build up if your transaction must pass through dozens of intermediary channels.

Caps on the channels. Another disadvantage of the network is that the channels are currently capped in their present iteration. That is, the maximum quantity of funds in a channel is equal to the amount of Bitcoins saved in the wallets of the two users when the channel is established. As a result of this configuration, some users may be forced to choose between liquidity within the Lightning Network channels and liquidity outside of them, on the main blockchain. This is far from ideal, particularly for individuals with little financial means.

Hubs. Furthermore, there have been worries raised about the formation of “hubs” – large-capital nodes through which the majority of transactions will pass. Many Bitcoin supporters see this as additional network centralization. However, it is unclear that such centres will be able to benefit from transaction fees in any major way.

It’s worth repeating that both the benefits and cons of the Lightning Network outlined above are very theoretical at the time.

Is it necessary for me to use the Lightning Network?

In fact, if you aren’t an expert user, you won’t be able to access Lightning Network just yet. So, for the time being, the best – if not the only – thing you can do is wait to see if the lightning network lives up to the hype, if it can truly function and be described, and if it is safe.

Keep in mind that the Lightning Network isn’t the only scaling solution out there, and it’s far from the clear frontrunner in the race, with Bitcoin Cash (BCH) being its main competitor.

The battle between BCH proponents and Lightning backers is raging, and there appears to be no end in sight. It’s possible that one of those ideas may win out, that they’ll coexist, or that a completely different solution will emerge.

The Lightning Network appears to be a lot of fun. Consider what you actually do with your Bitcoins if it actually works. If you only use the tokens as a long-term investment, you might not even need the Lightning Network, as it doesn’t appear to be completely secure to use it with large transfers right now.

However, if you consider Bitcoin to be a kind of alternative payment, the Lightning Network will be critical for you, if it meets expectations.

Instant micropayments, increased anonymity, and nearly non-existent fees – it appears to address the majority of Bitcoin’s issues.

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