The Year of 2019 has a lot of good news for Crypto enthusiasts. Especially for Bitcoin supporters, there are two great happenings are about to materialize. The first one is Bakkt which is related to the Bitcoin Futures and the other one is Lightning Network. If we talk about Lightning Network then it has something pretty promising updates under the hood and most of them will be covered here with this post of Blockchain Believer.
The Lightning Network
If we put Lightning Network in the shortest possible manner then it’s a faster, cheaper, Instant and revolutionary method of Bitcoin/Blockchain enabled transfers.
With Lightning Network, it is possible to perform payments off-blockchain irrespective of any limits. The legal framework is an apt example where for every legal documentation one need not visit courts as the seal and authorization of court on papers gives the parties to perform the legal procedures. Additionally, the comprehensible scripts pave the way for the smart-contract enforcement through the blockchain.
Currently, there are three teams named, Blockstream, Lightning Labs, and ACINQ at work on enriching a network that allows-
Instant Payments. Unlike the Bitcoin’s Block Confirmation system, in the Lightning Network, the transactions don’t require block confirmations. It makes them instant and atomic.
Real-Time Trading. It fulfills the dream of some traders where they need not be depositing funds on exchanges; as Lightning Network will allow real-time trading from a secure wallet.
Micropayments. It is something which takes possibilities associated with blockchain at new heights. The Lightning Network enabled micropayments allows people to make transactions in volumes of 1 Satoshi (0.00000001 bitcoin). Additionally, it also has the capability to perform Nano- and even pico- transactions, which are as small as 1/1000th of 1 Satoshi.
Atomic Swaps. It is something that will make Lightning Network revolutionary in truest means. LN Network will allow users to make crypto-to-crypto trades that too on different Blockchain Networks (BTCàETH or BTCàLTC). So, what was once an imagination the lightning Network brings it on the solid of reality.
Bidirectional payment. Also, with Lightning Network aka LN network transactions can be furnished across a network of channels without any requirement of the custodian as they are based on bidirectional payment channel system.
The Working Mechanism
Understanding Lightning Network concept is not so complex if explained in easy terms. Let’s understand it with an example:
There are two friends say, Bob and Alice, who hang out with each other frequently. These Hangout sessions involve a lot of transactions too that they share between them on regular basis. Suppose there are ‘N’ numbers of transactions between them on regular basis. To make things lucid they put 1 grand (read bitcoin) each in a common wallet to make it a pool of 2 grand and make transactions.
At the end of the day, Alice has a balance of 1.3 grand and Bob have 0.7 grand. Now what the lightning network is expected to do is- instead of putting multiple entries in the blockchain it will simply reflect a single transaction of 0.3 grand, which is the difference between the Alice and Bob’s Share. It will not only unclog the blockchain but also significantly lower the transaction charges due to a single transaction entry (in absolute terms).
What Problems does it solve?
Speed. With time Bitcoin became slower and the transaction times now take usually anything in between 30-60 minutes as the blocks take a lot of time for confirmation. Lightning Network solves this problem as it cut down the time from the hour(s) to milliseconds and/or seconds. Also, it a single blockchain entry instead of multiple entries between two parties makes it even faster.
Security. Hacks and thefts have been a common problem with Bitcoin lately. The Lightning Network works on this front by enforcing blockchain smart-contracts. The smart contract functionality in the blockchain enables instant payments across a network of participants. Thus, leaving less scope for hacking interventions and making it more secure.
Scalability. Unlike the present slow Blockchain transaction speed, it gives the leverage of performing millions to billions of transactions within a fraction of seconds. Thus, saving time and allowing the greater magnitude of transactions over a network. Additionally, the transaction can be performed without the intervention of third parties (custodians) between two people.
Costing. Bitcoin is notoriously famous when it comes to costs associated with the transaction fee. More importantly for the present system, it is even unthinkable for a user to perform micropayments (say in the magnitude of several satoshis). Lightning network solves this problem by lowering the fee significantly and opening the doors for micropayments.