What Is Bitcoin Lightning Network?
✍️ 14 October, 2022 - 10:43 👤 Editor: Jakub Motyka
- Bitcoin Lightning Network is an alternative Bitcoin (BTC) platform for off-chain transactions.
- Lightning network was created to boost Bitcoin scalability. Below is all you need to know about the layer-2 platform of Bitcoin.
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The Lightning Network is the second layer of Bitcoin (BTC) that facilitates off-chain transactions. It is the brainchild of Thaddeus Dryja and Joseph Poon. The duo proposed the platform in 2015, describing it as an off-chain channel of payments.
The Lightning labs unveiled the beta version of it in 2018. The layer-2 operates as a two-party transaction interface. On the network, two different parties can send or receive payments. All of its transactions run outside the bitcoin mainnet, becoming key in scalability.
Bitcoin Lightning Network And Scalability
Blockchain networks still face the scalability challenge. The shortcoming is due to many nodes and too many transactions. Lightning solves this problem by completing transactions outside the main blockchain network.
In addition to that, it reduces network congestion on the mainstream blockchain. Nonetheless, the layer utilizes the security structure of a conventional blockchain.
How Lightning Network Works And Some Of Its Use Cases
It allows users to create a peer-to-peer payment channel. By connecting two parties to a transaction, the network lets them send an unlimited number of real-time payments. The primary use cases of the Lightning network are instant micropayments.
Simply put, the lightning network creates smart contracts in the payment channel. The contract rules are locked in the channel and cannot be changed, also termed as immutable. The agreement is only finalized once the rules of engagement have been complied with.
To open the channel, a user must first fix some BTC tokens. The layer also charges a certain amount of fees. The charges are on top of the normal BTC gas fees.
Drawbacks Of The Lightning Network
Transactions on the network can be quite expensive. There are additional fees for initiating and closing a payment channel. The platform also applies routing fees, a payment to the nodes validating transactions.
Besides the charges, a user must have a wallet suitable for the lightning network. The wallet, equally, has to be funded using the conventional bitcoin wallet. Additionally, the lightning network is prone to security attacks.
Bad actors can easily initiate multiple transaction requests, congesting the network. Once the network is overwhelmed, the hackers can complete unauthorized transactions.
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- bitcoin-lightning-network: Unsplash