Bitcoin Scaling Solution Lightning Network – Faster Transactions?
The Bitcoin network currently has a backlog of 165,000 unconfirmed transactions. The transaction fees have escalated reaching a new all-time high ATF (Average Transaction Fee) of 160,000 satoshi (roughly $10) on November 11, 2017.
Subsequent to the news of SegWit2x proposed doubling of the block size falling through due to a lack of consensus, a lot of miners have switched back and forth between Bitcoin (BTC) and Bitcoin Cash (BCH). Although a tweak to the protocol could obviate this possibility of ‘renting' hashrate from another chain, that would not solve the problem of congestion for a large network such a Bitcoin due to insufficient scaling potential. Transactions being delayed upto several hours or even a day in case of a low fee has been a feature of the network lately.
Blocks on the Bitcoin chain are limited to a size of 1 MB. A block is found every 10 minutes, meaning that 144 blocks are found in a day. The average size of a transaction is 250 bytes. Therefore, roughly 4000 transactions can be written into a block.
With increasing adoption of Bitcoin without proportionate increase of block size, the network is unable to process all transactions in a reasonably expeditious manner. The rate at which blocks are found and the number of transactions that can be written into a block is proving insufficient.
What Is Lightning Network?
Lightning network is an off-chain solution proposed for the Bitcoin network, featuring a P2P system for processing micropayments of digital currencies.
The software allows transfer of money between participants without having to broadcast the transaction on the blockchain, known as a commitment transaction. A commitment transaction divides the funds from the funding transaction according to the allocation. Any number of further lightning transactions can be made to update the distribution. When a payment channel is closed, only the final version of the transaction is broadcast to the blockchain and the channel's funds distributed between the participants.
The lightning network's off-chain scaling solution is expected to address both transaction delays and high transaction fees. The software is in alpha phase of development. It is currently under trial on the Litecoin network.
Delay Causing Desertion?
Following the cancellation of SegWit2x, those within the Bitcoin network who believed that 2 MB blocks was the solution may have recently defected to the Bitcoin Cash chain. Bitcoin Cash network has issues on their own concerning their Emergency Difficulty Adjustment(EDA) which they seek to address in the November 13 Hard Fork.
Bitcoin is not the only altcoin seeking scalability solutions to their network. Besides a strong value proposition, the ability for a network to scale may determine which currency ultimately proves to be most adoptable for broader use. Raiden network is an off-chain scaling solution, facilitating low-fee, instant payments pursued by the Ethereum network whilst currencies such a Dash have resorted to experiment with on-chain scaling solutions.
There is broader consensus that given how cumbersome on-chain scaling can prove to be for a growing network, off-chain scaling may be the next evolutionary step in blockchain commerce.