If you've heard of Bitcoin, then you have probably heard of the name Satoshi Nakmoto – the creator of Bitcoin. When the first cryptocurrency was introduced to the world 13 years ago, one of the most popular critiques was: How can Bitcoin scale to size?.
What does this mean? It simply means Bitcoin with its current implementation can only process less than 10 transactions per second.
In contrast, Visa/Mastercard can process up to 1,700 transactions per second. That’s a very big difference, don’t you agree?
As the gospel of Bitcoin spreads across the globe and its adoption into the mainstream financial market picks up steam, it is important that Bitcoin as a cryptocurrency processes transactions faster without increasing the fees associated with fast transactions.
This is where the Lightning Network comes into play.
What Is the Lightning Network?
To understand the lightning network, you have to think of the Blockchain – where all Bitcoin transaction are currently processed – as a London tour bus. Buses in London usually have a lower deck and higher deck.
The blockchain is the lower deck while the Lightning Network is the additional layer on top of the lower deck. It’s job is to make sure the lower deck (blockchain) is not too crowded and people can also move (their transactions) on the same bus.
Lightning aims to reduce the number of transactions that go through the blockchain – and free up congestion as well as lower transaction fees.
How Does the Lightning Network work?
As a second layer on top of the blockchain technology, two or more parties can conduct off-chain transactions where funds are stored in “payment channels” and the users can exchange services successfully.
After the transaction is completed, the end state of the “payment channel” balance is then hosted on the Bitcoin network which means your funds are securely settled on the Blockchain. Easy peasy.
Here’s an analogy: Let’s say Ben and Kwabena are both running a business from different countries. You can evict that they will need to send money to each other often for utilities, salaries, and other needs.
With the Lightning Network, they can open a Wallet that they can both access with their own unique key. Then, they deposit $500 worth of BTC each in the Wallet.
Going forward, they can perform as many transactions they want to in a day or week. If Kwabena needs some $30 worth of BTC. he simply sends an invoice to Ben and Ben immediately shares the ownership of $30 to Kwabena.Then they both update their balance sheet on the Wallet.
That is how the Lightning Network works. It is only after the Wallet channel is closed that all the information is broadcasted to the blockchain.
So, you can perform 500 transactions in real time with other people and only have to run it through the blockchain after the transactions are done and the payment channel is closed.
Once you hop on the Lightning network with platforms like Bitnob, Bitrefill, and many others, you get immediate access to instantaneous transaction no matter how clogged the network is at almost zero fees.
As a Bitcoiner, between instant micropayments, increased anonymity, and the outrageously low fees, it is hard not to hop on the Lightning Network wave.
Welcome to the future of Bitcoin.