Why Is Lightning Network Crucial For Bitcoin?

In Partnership With Ascend

 

Bitcoin and Ethereum, each with millions of users, need help with scalability since the blockchain technology used to underpin them wasn't designed for wide adoption when it was developed in the late 2000s.

It might be possible to solve Bitcoin's problem with the Lightspark Lightning Network, a revolutionary second-layer blockchain upgrade. People call this technology a "game-changer" for Bitcoin, causing a lot of excitement.

Here's everything you need to know about the Lightning network, how it works, and why you need it.

What Is The Lightning Network?

The Lightning Network adds new transactional functionality to the Bitcoin network on layer 2. Using it, two parties can create a peer-to-peer payment channel away from the main blockchain, and they're also called off-chain transactions.

Bitcoin off-chain transactions let parties avoid the usual congestion on the Mainnet. Once both parties are done, the off-chain transactions are combined and transcribed onto the Bitcoin blockchain as one significant transaction.

Why does Bitcoin need the Lightning Network?

The blockchain of Bitcoin only allows a limited number of transactions per block. Therefore, if your transaction cannot be included in the current block, it will be queued for inclusion in the next block. You may have to wait a few minutes or several days for the queue to be filled.

It's hard to use Bitcoin for everyday transactions because of its scalability, and you can't buy coffee or groceries with Bitcoin if it takes hours to complete a transaction. Because Bitcoin can't be used for micropayments or everyday use, it's a form of “digital gold”.

How does the Lightning Network work?

As a layer-2 solution, the Lightning Network works directly with Bitcoin. Because Bitcoin is the payment method, all peer-to-peer communication is strictly between two parties.

Invoices are locked in with Bitcoin, so the party making payment scans the invoice with their Lightning wallet, while the party receiving payment scans the QR code with their Lightning wallet. Payment channels act like ledgers that record transactions between two people until they close.

There's no need for the main blockchain to know when bitcoins are transferred indefinitely between two parties. When both parties are done, the channel can be closed. The logged data is stored in one transaction and sent to the Bitcoin network.

A Lightning Network transaction will consolidate hundreds and dozens of other on-chain transactions into one, making it ideal for everyday purchases since it enables small, instant payments.

What is the Lightning Network fee?

The Lightning Network charges meager fees. It has a base fee of 1 Satoshi ($0.00000001 BTC), roughly equivalent to $0.04. It can also handle one million transactions per second, removing all fees.

On the other hand, the main Bitcoin blockchain can process around seven transactions per second. The Lightning Network's channels enable close-to-instant transactions between parties because of this.

Pros Of Lightning Network

It is important to note that the Lightning Network has many advantages and, when applied to Bitcoin, could create a significant change in the cryptocurrency market.

• Transactions per second (TPS) - Lightning Network could increase bitcoin's transactional bandwidth dramatically and speed up transactions at the same time. Off-chain transactions allow individuals to move bitcoin between themselves in near-instant times by bypassing the Bitcoin blockchain.

• Keep it private - Even though the Lightning Network isn't as private and anonymous as Monero, it's more private than the Bitcoin Mainnet. After transactions are transcribed onto the blockchain, payment channels close. There's a common misconception that cryptocurrency is used by criminals to hide their identities, but the Bitcoin blockchain proves the opposite. Anyone can see which wallets were involved in any transaction. As a Lightning Network transaction isn't recorded on the Mainnet, it's more private than a Bitcoin blockchain transaction. Essentially, they're one transaction.

• Costs of transactions - Lightning Network transactions also have lower fees, and you'll have to pay more during periods of congestion because Bitcoin's blockchain prioritizes transactions with higher prices. You can open a channel between two parties and send bitcoin by using lightning.

Summary

The Lightning Network's growth in 2022 demonstrates its potential to be Bitcoin's next big revolution. In March 2022, over 80 million people had Lightning payments, up from 100,000 in the summer of 2021. It will also let users trade other types of tokens through Lightning Labs. The protocol enables users to trade stablecoins on Lightning and Bitcoin instead of BTC. The lightning network is getting more popular on cryptocurrency exchanges. 

 

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