To date, Bitcoin can have only about 4.6-7 transactions per second while Visa average of 24,000, and its peak capacity of around 50,000 transactions per second. But how Lightning Network can help BTC or other cryptocurrencies to beat the record promising to process around 1 million transactions per second. Read on. houston digital agency
Everyone who has studied Bitcoin, Blockchain, and the concept of decentralization at least a little knows the strengths of this revolutionary concept. Those who have never delved into bitcoin are those who still believe that this is a scam, but it’s just a matter of time). I will remind the main advantages are: forget third parties (Banks, MoneyGram, Western Union), global payments can be done quickly (especially comparing to banks), very low almost imperceptible fees, safe and secure, identity protection, can have anonymous transactions and other. And all of these can work perfectly for transferring large sums, but when it comes to the possibility of buying a cup of coffee at McDonald’s for bitcoin, then there is a problem. Transactions are not yet enough fast for this kind of purpose and transaction fees won’t be so minuscule. Or imagine if you want to pay 1 cent, today no-one acquiring system will allow you to do so. houston digital agency
So what is network lightning?
In simple words from me. Developers around the world have been racking their brains to find a solution. They suggested that if we do not need to save every transaction taking place on the blockchain (blockchain is like an account book with all the transactions). Instead, an additional layer appears above the main blockchain, in which two sides can create a channel and exchange transactions without recording each. In this case, the transactions become almost instantaneous and with a very low fee. houston digital agency
So, what the point?
For example, it can be two friends or relatives or a contractor with a customer and they need to exchange transactions on an ongoing basis and with a minimal fee. Then they need to:
- create a multi-signature wallet. It’s like a wallet with two locks and each participant has his own key to access the wallet.
- then every participant or just one side puts on an account any amount of bitcoin – 1 or 0.005
Now, when one side decides to send money to the other, its balance becomes less by this amount, and the receiving party gets more by this amount. And a copy of the balance is kept by each of the parties, so each participant can close the channel at any time in order to receive funds and write the final account balance to the main blockchain network. Thus, only two entries are displayed in the main network – opening and closing the channel, and all other movements of funds are not recorded, but occur inside the channel. houston digital agency
The lightning network allows you to have an unlimited number of transactions within your channels, and in fact, the transfer becomes just a redistribution of money which is in the wallet. And the most interesting thing is that when this network of channels will grow, you probably will not need to create every time a new channel to cooperate with Starbucks or Walmart, because it will be able to find an open channel through those people with whom you already have channels and the system will find the shortest path. houston digital agency
And finally, the most amazing feature of lightning is that you will not need to exchange different cryptocurrencies in order to pay off with each other alone. The network will allow atomic swaps, which allows you to pay in different currencies to each other, converting automatically without intermediaries.
Who are these gods?
Three companies are working trying to implement using the different languages: Blockstream, Lightning Labs and ACINQ. Finally, it is important to mention that the recent tests have proven that these three major implementations are fully interoperable, which means they can seamlessly work with one another.
When, what, where?
Everyone from “the Bitcoin world” is looking forward to the implementation of this payment protocol, and if earlier it was planned to use it only for Bitcoin, now other cryptocurrencies Stellar, Litecoin, Zcash, Ether, and Ripple are starting to use it too. Experts believe that a full launch can happen in a few months or maybe it will take a couple of years.
If that happens, there is a possibility of cross-chain atomic swap technology being developed further, thus marking a first step towards building truly decentralized cryptocurrency exchanges.
- fast transactions, can compete with Visa, Paypal;
- almost imperceptible fees;
- scaling – they say that the system can grow to 1 million transactions per second;
- cross-chain atomic swaps to send money from one chain to another without having to trust a third-party intermediary;
- security and anonymity – all the micropayment made via Lightning channels will be almost impossible to trace.
- not fully operational yet – it looks great on paper, but as of yet it’s impossible to find out whether it’ll look as great once realized.
- channel caps. the amount of Bitcoins stored in the wallet by the two users upon establishing a channel is the maximum amount of funds in that channel.
- hubs. a sort of nodes with a lot of capital that the majority of transactions will go through may lead to the centralization of the network. But, it is unlikely that such hubs will be able to make any significant profit of transaction fees.
Can I use the Lightning Network today?
Yes, you can, but you should keep in mind that it’s still in testing and developing mode. The Lightning Network sounds exciting, if you use the tokens as a long-term investment and nothing else, you might not even need the network as currently. But, if you view Bitcoin as an alternative form of payment, the Lightning Network, provided it lives up to the expectations, will be essential for you. Instant micropayments, increased anonymity, almost non-existent fees – it really seems to offer solutions to most of the Bitcoin’s problems. houston digital agency
As for me, my next website for sure will have a BTC-payment system with an open channel in the Lightning Network. And if you want one too, let’s know and we can set-up it for you!