The overall speed and efficiency of Bitcoin (BTC) blockchain have been a subject of many debates in the past. Some of those debates even led to major disagreements, which triggered hard forks of the Bitcoin mother-chain.
Many solutions were proposed to make Bitcoin quicker and cheaper to use for conducting transactions, and Lightning Network was always one of the most applauded solutions.
A System of Smart Contracts
The scalability of cryptocurrencies and the blockchain technology, in general, isn’t the issue that’s bothering just Bitcoin. Other networks, like Ethereum (ETH), have similar problems as, with the wider adoption, their systems become overcrowded, slow, and more expensive.
Thaddeus Dryja and Joseph Poon, in their 2016 whitepaper, describe the Lightning Network, which, through a system of smart contracts, makes a blockchain ecosystem more scalable.
A System of Private Channels
By using the Lightning Network, users are opening channels to process payments among themselves in a safe and trustworthy environment.
Users have to have a multi-signature wallets set up to enable transactions which require more than one signature.
For example, if Leon wants to quickly send one Bitcoin to Olivia, they would have to open up a Lightning channel between themselves.
Two friends have to set up a multi-signature wallet (which needs more than one signature to confirm a transaction) for a Bitcoin blockchain to initiate the payment channel, and record the addresses on the blockchain.
When they oblige to those rules, and the channel is opened, Leon and Olivia can conduct any number of transactions without really accessing the Bitcoin blockchain.
By adding their signatures to the multi-signature system, they both confirm the balance their wallets hold after each transaction.
Upon the closure of the channel, all transactions get recorded on the blockchain, thus bypassing the otherwise needed confirmation until the whole process is over.
What are the Benefits?
By using Lightning Network for transactions, Olivia and Leon were able to make their payments much quicker than usual as they didn’t have to wait for the confirmation process to pass on the Bitcoin blockchain.
Furthermore, the two didn’t have to pay the expensive Bitcoin transaction fees but substantially reduced ones instead. Moreover, Lightning channels can provide more privacy since these transactions are not permanently kept in a public ledger.
Micropayments have been Bitcoin’s Achilles heel in the past, and with Lightning Network they once again became possible.
The number of transactions per second is also substantially raised from the seven possible on the network that produces one 1MB block every 10 minutes.
With the widespread usage of the Lightning Network, Bitcoin will again be able to compete with some younger blockchain networks, whose technology has by far surpassed the fundamentals of the King.
Nevertheless, Bitcoin, in spite of its apparent flaws, remains by far the most valuable cryptocurrency, and, because of such improvements as the Lightning Network, it looks like it’s going to remain on its pedestal.