How to Scale Bitcoin or What is the Lightning Network?

scaling bitcoin

Blockchain is an absolutely revolutionary technology that can change almost all branches of human activity. But it has one rather serious problem that prevents it from “conquering the world” – this is speed. Unfortunately, now the problem of scalability does not allow using this technology, so to speak, at full capacity. As the more participants of the network there are, the slower speed of its work will be. There are several options for solving this problem; we will talk about one of them today. So, the technology of the Lightning Network: what is it and how will it help Bitcoin and other coins to become more nimble?

(please, click the topic to scroll down to it)

  1. History and operation principle of technology
  2. What is the Lightning Network?
  3. Main purpose and scenarios of application
  4. Conclusion

1. History and operation principle of technology

Thoughts about creating a solution to increase the speed of the Bitcoin network began to appear almost immediately after its creation. The first brick in the foundation of Lightning Network technology was the idea of ​​creating payment channels between the two users. The payment channel is a kind of autonomous corridor between two bitcoin-wallets, transactions in which can occur without the participation of the entire network. Such a solution will resolve several issues at once:

  • transactions within the channels are almost instantaneous, as they pass directly, without the participation of the whole blockchain;
  • commission fee for such transactions is not charged, since it does not require processing by miners.

How do the payment channels work?

Channels work as deposit cells, in which two users must firstly put equal shares. Only the fact of opening the channel is recorded in the blockchain, everything that happens inside next remains anonymous for all other network members. Means that are stored in it cannot be spent by one participant, for this, the mandatory permission of the second user is required. These coins can only be used for transferring to each other.

Suppose user A and B have placed 5 BTC in the trade channel, then user A expresses the desire to send 3 BTC to the user B, do you think what is necessary to do for this? He just needs to transfer ownership of the required amount to user B.

A similar concept had been introduced back in 2009, but only in 2018 such ideas were implemented in a more or less working tool called Lightning Network.

2. What is the Lightning Network?

Without consolidation in network, the channels themselves cannot become a comprehensive solution to the problem of blockchain’s scalability. In order to describe the work of the Lightning Network, it is necessary to take three users A, B, C at once. Trading channels are open between A and B, and also between B and C. Let user C want to transfer to user A a certain number of coins (there is no channel between them) . In this case, he asks the user B to write out the receipt to user A, and then he carries out the transaction in favor of B via their channel.

This is a fairly simplified illustration of the operation of the Lightning Network; it can carry many levels, which will significantly reduce the load of the blockchain.

3. Main purpose and scenarios of application

This technology has recently gained popularity, as the scope of its application is quite extensive:

  • increasing the bandwidth of popular cryptocurrencies (now the technology works only with BTC, but in the future it can appear in ETH, LTC, etc.);
  • a significant increase in the speed of work of cryptocurrency exchanges, which would allow traders to make instant transactions;
  • instant payments within applications, games, etc.

4. Conclusion

The technology of the Lightning Network has great prospects, in the foreseeable future it can become the main one in the industry. It allows you to substantially unload the blockchain network and increase the speed of transactions. In the last few months, this technology is rapidly gaining a new audience.

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