Bitcoin’s lightning network is a second layer integrated into the Bitcoin protocol to enable seamless and faster transactions. Bitcoin lightning network is designed to improve transaction processing time and reduce the transaction fee in bitcoin transactions. The Lightning Network also allows Bitcoin transactions to be done off the blockchain, and that is, it will enable off-chain transactions.
The Bitcoin Lightning Network became necessary due to increased Bitcoin holders and transactions. As the blockchain protocol becomes popular, processed transactions continue to grow. As the nodes and miners keep receiving more transactions, the Bitcoin network gets congested, and the transaction fee continues to increase. The frequent occurrence of network congestion, overworked nodes, and increasing transaction fee became of great concern. One of the solutions to ensure Bitcoin becomes more scalable is the Bitcoin Lightning Network.
Bitcoin Lightning Network is a game-changer for the Bitcoin protocol and its users. The second-layer network was developed by Thaddeus Dryja and Joseph Poon in 2015. The urge for this type of technology became latent when the Bitcoin protocol had scalability issues. As the Bitcoin network tried to process more transactions, users and the network continued to encounter challenges.
The Bitcoin network seeks to ensure that Bitcoin users and other parties can transact offline. The Lightning Network creates payment channels between two users so they can engage in off-chain transactions. Since the Bitcoin Lightning Network allowed off-chain trades, the number of transactions would decrease, and those left on-chain would have enough nodes to process them. These transactions are often micropayments.
The Bitcoin Lightning network allows users of the Bitcoin network to transfer tokens to other parties with little or no gas fee. The Bitcoin lightning network aims to achieve zero-gas fees with no delay. Because the bitcoin network was congested and people were queuing to fill their transactions into the available blocks or miner nodes, the processing time and the transaction fee increased. So since the Bitcoin lightning network has reduced the congestion, there would be no waiting time. As soon as you make transactions, the available nodes will verify it and process the trade with little or no transaction fee to be deducted from your wallet.
The bitcoin lightning network helps to process transactions faster. The second layer network was developed to improve the transaction processing speed of Bitcoin transactions. Before the Bitcoin lightning network launch, large transactions took quite a long time to verify, process, and validate. Instead of waiting several hours to get your transactions processed, the layer two networks have drastically reduced waiting time. Whether large or small transactions, you can now process them on the go.
After a series of complaints from bitcoin users, it was time to overhaul the entire scalability feature or integrate a layer-2 network. Instead of creating a new blockchain protocol on Bitcoin and strengthening the scalability feature, a layer-2 solution was developed. This layer two solution is the Bitcoin Lightning Network.
The Bitcoin Lightning Network works by setting up a payment channel between two parties. In this payment channel, only the first and the last transactions are available on the Bitcoin blockchain, and all other transactions (in between) will be conducted off-chain. Since the bulk of the problem was congestion in the amounts of transactions processed on-chain, the Bitcoin Lightning network seeks to provide an off-chain payment gateway to divert some transactions to offline processing.
The two parties will commit a certain amount of Bitcoin to start a payment channel, which will be held in the Bitcoin public ledger until the payment gateway becomes inactive and closed. The total amount of Bitcoin that you can use for a transaction in this payment channel can not exceed the amount of Bitcoin you committed.
The Bitcoin Lightning network creates a peer-to-peer payment channel between two parties ready to transfer or receive crypto tokens. For instance, a payment channel between a customer and a restaurant. This payment channel is offline and can accept an unlimited amount of transactions with no transaction fee. The lightning node also works by routing and linking multiple payment systems together. All channel information is consolidated into one transaction and sent to the Bitcoin mainnet for permanent recording.
Finally, the Lightning network creates a smart contract between parties where the agreement rules and codes running their transactions are coded into the contract. The smart contract ensures automatic contract fulfillment.
Some of the notable advantages of the bitcoin lightning network include;
Faster and cheaper transactions: One of the foremost advantages of the Bitcoin lightning network is that users now have to pay little or no transaction fees as opposed to high transaction fees being paid before. The waiting time for transactions has also reduced because smaller transactions are now done offline, giving way for more significant transactions on-chain.
Atomic Swaps: The bitcoin lightning network allows crypto enthusiasts and users to swap one crypto token for another without using a third party or exchange platform. The nuclear swap feature with the Bitcoin lightning network is near-instant with little or no gas fee deduction.
Before you can use the Bitcoin lightning wallet for payment gateways and transactions, you must acquire a wallet compatible with the lightning network. If you find your lightning network, the user needs to fund it from a traditional Bitcoin wallet to get paired with another user.
And watch out: there are two participants in a payment channel created by the Bitcoin lightning network; if one chooses to close down the channel while the other user is offline, the former can steal the available funds. By the time the latter user comes online, the channel would have been deactivated with no tangible trace of the other user.
The bitcoin protocol uses the proof of work mechanism characterized by high transaction fees, slow processing time, network congestion, and other scalability issues.
The development of the Bitcoin Lightning network was necessary to improve the scalability features and reduce all issues associated with the protocol to the barest minimum.
The Layer2 solution, no doubt, has its imbroglio that the blockchain developers will eventually rectify.