It consists of a network that allows us to process bitcoin micropayments instantly and at a very low cost. Thus, it gives the network "scalability", a goal that since the beginning of Bitcoin even Satoshi Nakamoto highlighted as an ideal.

The scalability debate

You may have heard that the number of transactions per second on the Bitcoin blockchain is not that high. Nor are they immediate transactions: the frequency of issuance of a transaction block is about 10 minutes, so a transaction is recorded on the blockchain only after that time.

Bitcoin's great strength is its security and decentralization, and the feasibility of expanding the number of transactions, either by increasing the frequency of block issuance or by increasing the size of each block, has been discussed on numerous occasions. In each of these proposals, a certain amount of decentralization and security was resigned in one way or another.

Time has shown that the Bitcoin community prioritizes these essential features of the network. However, if we want bitcoin to consolidate as a medium of exchange and be used in everyday transactions, it is clear that we must provide scalability.

Let's take a practical example:

You are going to pay for your coffee and want to use bitcoin from your wallet. The coffee costs the equivalent in BTC of 3 dollars, while the network fee to be paid at that time for the transaction is equivalent to another 3 dollars.

That exchange is no longer convenient. Not to mention also that the seller will have to wait a few minutes to make sure that the payment was made.

Lightning Network fixes this.


On-chain and off-chain transactions

Let's consider another example case:

When transferring a real estate property, it is necessary to carry out procedures and have documents certified by notaries. But can you imagine needing the signature of a notary to fill up your car with gas? Or to buy products at the supermarket?

Exactly! It sounds ridiculous. Not all transactions require the same level of formality and registration.

Moreover, with a larger number of transactions, a network like Bitcoin could become congested and its cost of use could rise, undermining its initial purpose.

We could begin to think of transactions occurring on the Bitcoin network in the same way. There are transactions that will be recorded on the blockchain. However, with the increasing use of bitcoin for everyday transactions, it may be convenient to prioritize transactions and preserve the use of the blockchain to record those of greater importance.

Thus, we will have on-chain transactions and off-chain transactions, which will occur outside the blockchain, although they will maintain all the characteristic properties of a traditional bitcoin transaction.


Payment channels

How can we conduct off-chain transactions while still enjoying the security and decentralization of the bitcoin network? One answer is provided by payment channels.

Let's imagine such a case:

Pablo and Maria make several transactions with each other during a single day. They start their day with 100 dollars each in their account. In the morning, Paul sends two transfers of 20 pesos to Maria, while she transfers 15 and 35 pesos to him in the afternoon.

Payment channels allow to keep record outside the blockchain of the transactions made between the parties, leaving only the initial and final state of the balance of that channel recorded in the chain.

In the aforementioned case, a channel could be opened between Paul and Mary with 100 pesos on each side. After the exchanges between them, the balance of the channel will indicate that Pablo owns 1100 and Maria 900. The only transactions that will be raised and recorded in the blockchain will be the opening (funding) and closing (consolidation) of the channel.

Thus, it is possible to reduce transaction costs with operations that do not necessarily have to be stored in the Bitcoin network. These remittances are credited instantly and at almost zero cost, making it possible to scale the use of bitcoin to everyday exchanges.


Interconnection

Payment channels can only be opened between two parties. However, what gives the Lightning Network its "network" character is the possibility of connecting users with each other, each with their own open channels.

In this way, it is possible to make transactions between parties that do not have an open payment channel with each other. Transactions will be "routed" and pass through both channels to find their way to the receiver.


Thirteen years after Satoshi Nakamoto published the initial Bitcoin whitepaper, there is no doubt that the first and most popular cryptocurrency has functioned as a store of value. Its price is growing year by year and attracts the interest not only of individuals, but also of investors, institutions and even states.

Development of the Lightning Network opens the door to a new dimension in the history of bitcoin: its massification. The use of BTC in everyday transactions adds new properties to those already mentioned about bitcoin. It is no longer just a secure, portable and decentralized money. It is now also an agile and economical alternative for payments and transfers of small amounts

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