Should the Bitcoin Community Have Faith in BTC's Lightning Network Second Layer Protocol

Can BTC’s Lightning Network Really Solve Bitcoin’s Biggest Problems?

Bitcoin’s biggest problem is, without a doubt, scalability. If bitcoin can scale effectively, it could become the best payment system in world history. If it can’t scale effectively, then bitcoin could quickly become irrelevant. Bitcoin’s Lightning Network could be the difference-maker.

The Lightning Network is a bitcoin network upgrade that would allow bitcoin to scale to process more transactions per second at a cheaper cost. The Lightning Network is being actively tested and has thousands of nodes, but it’s not yet usable by the majority of the BTC network.

If successful, the Lightning Network will allow for better scaling on BTC, including more transactions per second at a cheaper cost.

How will the Lightning Network solve bitcoin’s biggest problems? Will the Lightning Network solve bitcoin’s biggest problems? Financial portal FX Empire recently sought to answer that question in a blog post. Below, we’ll summarize some of the key points from that writeup, including how the Lightning Network could solve bitcoin’s major problems.

What Is The Bitcoin Lightning Network?

The Lightning Network is a proposed scaling solution for the bitcoin core (BTC) network. It’s a new payment protocol that could be added on top of BTC.

The Lightning Network would enable instant transactions between nodes in a blockchain. It’s seen as an effective scaling solution that will allow faster, cheaper transactions across the bitcoin network, making it easier than ever for people to send and receive instant payments.

The Lightning Network was proposed by Thaddeus Dryja and Joseph Poon in 2015. Today, the Lightning Network is being actively tested and is in place across thousands of nodes.

The proposed Lightning Network protocol consists of user-generated channels capable of sending payments back and forth in a secure, trusted fashion.

There are two versions of bitcoin today, including bitcoin (BTC) and Bitcoin Cash (BCH). BTC is attempting to scale via the Lightning Network, which requires breaking away from Satoshi’s original vision for the network. BCH, meanwhile, is attempting to scale by increasing the blocksize limit, corresponding to Satoshi’s original vision for bitcoin. For this writeup, we’re focusing on BTC’s scaling proposal and the Lightning Network.

How Does Lightning Network Work?

Lightning Network’s promises all sound good. We all want greater scalability on the bitcoin network. However, actually using the Lightning Network is a slightly awkward and time-consuming process – at least in its current state.

Here’s how FX Empire explains it:

“For Lightning Network to operate, there must be two people looking to transact with each other using Bitcoin. In that case, the two will have to set up a multiSig wallet, which is to be used as a storage facility for bitcoins transacted.”

You setup a multiSig wallet between you and the coffee shop, for example. You store bitcoins in that wallet. When you buy a coffee from the coffee shop, you’re sending bitcoin to the coffee shop from within the wallet. You’re authorizing the transfer of bitcoins within the wallet to the coffee shop.

In other words, if you want to make fast and cheap payments at a coffee shop, then you’ll need to spend a few minutes setting up a multiSig wallet between you and the coffee shop. Once that wallet address is saved on the bitcoin blockchain, Lightning Network will open a payment channel. That payment channel allows the two parties to conduct an unlimited number of transactions without posting information to the blockchain.

Basically, Lightning Network involves paying to create a side-channel away from the bitcoin network. You’ll need to create that side channel with every merchant or person. If you visit different coffee shops every day, for example, then you’ll need to setup a multiSig wallet with each coffee shop.

At the conclusion of each Lightning Network transaction, each party involved must sign an updated balance sheet indicating how much of the bitcoin stored in the wallet belongs to them. In a typical transaction – say, between you and a coffee shop – all of the bitcoins in the wallet belong to you and none belong to the coffee shop.

Once the two parties have completed the transaction and signed the new balance sheet, the transaction is complete. The channel remains open until you close it – say, if you no longer decide to visit hat coffee shop.

Once a channel is closed, the closure of the channel is recorded on the blockchain.

Will Lightning Network Solve Bitcoin’s Biggest Problems?

The Lightning Network has not yet been fully implemented on bitcoin’s blockchain. However, it’s been used thousands of times. BTC supporters and Blockstream employees tend to report positive reactions from using Lightning Network, claiming it delivers fast transaction speeds and reduced transaction fees.

In terms of fees and speeds, the Lightning Network is significantly faster than the native bitcoin blockchain. Users report transactions being confirmed in under 2 seconds, for example, while paying transaction fees of 0.000001 BTC.

Bitcoin’s biggest problem is scalability, and Lightning Network is designed specifically to address that problem. However, the Lightning Network is far from perfect.

Lightning Network Problems

FX Empire brings up a number of Lightning Network problems, including:

Tied Up Funds

The Lightning Network is based on the idea of storing bitcoin in a shared multiSig wallet. Accessing these funds requires a signature from you and the other party – like the coffee shop. Lightning Network will tie up funds in channels, preventing people from using bitcoin for other purposes. You’ll be required to monitor your multiSig balance and top it up from time to time.

Liquidity Issues

The Lightning Network could cause people to fund their channels at the same time as they’re spending their balances, triggering liquidity issues. “Soon after funding, the balance could diminish considerably on payments being made. Such a move could trigger liquidity issues on the network”, making it difficult for larger payments to go through.

FX Empire proposes solving these problems by creating large payment channels that are left open and are fully funded all the time.

Benefits Of The Lightning Network

Earn Interest by Providing Liquidity

Lightning Network will reward users who provide liquidity by lending bitcoins to be used in other channels. This Lightning Node system will incentivize users to run Lightning Network nodes. This interest effectively becomes the transaction fees used to incentivize operation of the network.

Fast Transaction Speeds

Lightning Network undoubtedly creates fast transaction speeds. BTC is notorious for its high fees and long transfer times, with some transactions taking hours to complete even with high fees. Lightning Network will complete transactions in seconds.

Lower Blockchain Size

BCH is scaling by raising the blocksize limit. This, in turn, makes the bitcoin blockchain significantly larger, making it harder for miners to mine using devices with smaller storage space. Lightning Network will keep the bitcoin blockchain size small at the expense of some centralization and security.

Low Fees

Bitcoin fees skyrocket during times of high volume. Lightning Network will lower fees because you’re not paying miners for each bitcoin transaction. All transactions are not posted to the bitcoin blockchain.

Micropayments

Today, the smallest amount you can send on the bitcoin network is 0.00000001 BTC. Lightning Network lowers this amount even further, allowing people to send micro-payments beyond what would normally be divisible with bitcoin.

Decentralization

Supporters of Lightning Network claim it will encourage decentralization by making it easier for anyone to mine bitcoin. By keeping bitcoin blocks small, it allows anyone to run a full node.

Better Security

LN supporters also claim the network will increase security. “The use of channels with Lightning Network will make it nearly impossible for hackers to steal people [sic] bitcoins,” explains FX Empire. “For example, if an exchange has open channels with each user who has a wallet, a hacker will not be able to simply take coins held in LN channels.”

How To Access Lightning Network

Lightning Network is not currently part of the bitcoin protocol. However, in the future, you’ll be able to use Lightning Network through the following methods:

Web Wallets: Lightning Network-enabled web wallets like HTLC.me allow you to make bitcoin payments via the Lightning Network. You need to find someone willing to setup a Lightning Network-enabled wallet on the platform to make a transaction.

Desktop Wallets: Two desktop wallets let you use Lightning Network, including Lightning-Ape Wallet and Zap. Both wallets use Lightning Network Daemon LND as the back-end client. Setting up these wallets requires visiting the Github page and downloading the latest version.

Phone Wallet

There are three phone wallets with Lightning Network support, including LND, Éclair, and C-Lightning. Éclair is available on Android and can be downloaded from the Google Play Store.

When Will Lightning Network Officially Launch?

On August 8, it was announced that Lightning Network had passed 3,000 nodes with capacity approaching 100 BTC. However, Lightning Network is not yet part of the core bitcoin protocol. You can access Lightning Network using the products above, however, while the network continues its development.

It’s unclear when Lightning Network will reach widespread adoption – if ever.

To some, Lightning Network is a controversial scaling solution that changes the nature of bitcoin, moving it far away from Satoshi’s original vision. To others, Lightning Network is the scaling solution bitcoin has been waiting for. Stay tuned to find out what’s next for bitcoin’s Lightning Network.

[FREE] Get Our Best Crypto Trading, Mining & Investing Hacks:

*Action Required* Enter Your Email To Get Insight For Trending Coin News & Reviews

I will never give away, trade or sell your email address. You can unsubscribe at any time.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

six + two =