Bitcoin’s Lightning Network
In 2016, Developers Joseph Poon and Thaddeus Dryja offered a protocol called”the lighting network” that would enable cheaper and faster transactions while not having to change the block size.
coin’s scalability issues mean that shorter transactions can congest the blockchain. The Lightning Network was developed to fix that.
Since each block on Bitcoin’s blockchain conducts an average of 10 minutes to process, only a little number of transactions can go through at a time. In 2016, developers Joseph Poon and Thaddeus Dryja offered an idea that could enable cheap and fast transactions on the network without having to change the block size. They called it, the “Lightning Network.”
The Lightning Network makes a second layer on top of the Bitcoin(BTC) blockchain that uses user-generated, micropayment channels to complete transactions more efficiently.
These transactions are much quicker than regular Bitcoin(BTC) transactions because they don’t need to be broadcast to the entire network. And because there are no miners that require incentivizing, transaction fees are low or even non-existent.
How the bitcoin lightning network works
Judge of Bitcoin’s main blockchain as a highway, and the Lightning Network as a series of side streets that decrease the highway’s congestion from shorter transactions.
First, two groups who hope to transact with each other set up a multi-signature wallet (which needs more than one signature to enact a transaction). The wallet holds some amount of Bitcoin(BTC).
The wallet address is then reserved to the Bitcoin (BTC) Blockchain, setting up the bidirectional payment channel.
The two groups can now conduct a total number of transactions without ever touching the details reserved on the Blockchain. With each transaction, both groups sign an updated balance sheet to reflect how much of the Bitcoin(BTC) is reserved in the two wallets.
Once both groups finish transacting and shut out the channel, the resulting balance is submitted on the blockchain. In the event of a dispute, both groups can use the most recently signed balance sheet to retrieve their share of the funds.
Where is our position with the bitcoin lighting network?
The Lightning Network founded a beta version in 2018 but was far from fully operational. Since then, the number of nodes on the Lightning Network has doubled year over year, pushing the project closer to achieving its goal of making Bitcoin (BTC) a viable currency for day-to-day transactions.
Once both complete transacting and close out the channel, the resulting balance is submitted on the blockchain. In the event of a dispute, both groups can use the most recently signed balance sheet to retrieve their share of the funds.