The lightning network is a secondary network built on a primary system. Lightning network’s main purpose is to reduce the workload on the main network and, as a result of this, create faster and smoother transactions.
For bitcoin, a lightning network was built to increase the efficiency of scalability on the system and also reduce the number of transactions the network has to process and add to the blockchain.
The lightning network doesn’t change the features of the main network, and it is only there to assist the main network without disrupting the functionality.
How well do you know the cryptocurrency world, with bitcoin being the most popular and used cryptocurrency in the world?
The users of Bitcoin for daily transactions continue to increase as more individuals and organizations accept it as a valid means of payment.
The cryptocurrency world was created to provide an upgrade to the traditional methods of conducting transactions. All cryptocurrency is built on the blockchain network, which is their base network. The blockchain protects transaction data from the cryptocurrency world using Cryptography.
Cryptography is one of the most secure ways to protect your data as it makes use of advanced algorithms, which is difficult to manipulate.
Some features of the blockchain include Decentralization, Scalability, Security, and faster transaction time.
The cryptocurrency has succeeded in solving so many problems, such as the removal of central authority and providing better security, but it still lacks in one critical aspect.
Taking Bitcoin as an example, the daily users of the cryptocurrency increase, the transaction time has become slower, and the charges involved in each transaction has relatively increased.
Bitcoin has initially promised scalability at its launch, the network was able to keep up for a while, but as the volume and number of users increased, the efficiency of the system has reduced in this aspect.
Due to this fact, some transactions were proposed to be moved off the blockchain network to reduce the workload.
Imagine a thousand people paying for early coffee using bitcoin as the daily payment method, each of this transaction will have to be registered the blockchain network individually every morning, what a waste of space.
The efficiency of the scalability of the crypto coin has reduced due to reasons such as this; with the stated problem, the obvious question on every reader’s mind is, what is the next way forward?
Due to the decrease in efficiency of scalability, that is, the reduced speed of transactions and the high amount associated with charges for transactions, the lightning network was created.
At a time when banks didn’t exist, cash was stored at home. With the creation of banks, people started saving money in the bank as it is safer and more accountable but, with the increased usage by public and organizations, most banks began getting exceedingly filled up.
To tackle this problem, atm’s were invented so that those that only want to withdraw doesn’t need to enter the bank; hence, reducing the traffic in banks significantly.
Now let’s fast forward to the recent time; you don’t even need to have the cash to conduct transactions; all that is required is your credit card. Almost all transactions happen online, and the banks need to manage and keep records of those transactions in their database, making the operation smoother and more convenient.
You still remember the story of the thousand people who order early morning coffees by paying with bitcoin.
What if all the data for each transaction was stored in the blockchain only after the completion of the transactions, let’s say the monthly summary data is stored in the blockchain network.
This will significantly reduce the number of daily transactions the bitcoin network will have to process and confirm daily.
With the lightning network, transactions are conducted faster and smoother while maintaining security, privacy, and decentralization in the process.
Similar to the growth of the financial institution, it can be likened to the atm. Which reduces the number of people that comes into the bank for the transaction.
With the lightning network, the bitcoin network deals with fewer transactions daily and can, therefore, maintain a fast transaction that it had when the volume was not this much.
The bitcoin experienced a reduction in processing time due to increased usage, now processing only seven transactions per second and charging a higher fee to process transactions.
If bitcoin intends to hold the dream of been the future of digital currency that will be widely accepted and used, the problem had to be fixed, which led to a search for a solution.
With the lightning network, the workload on the bitcoin network is greatly reduced, resulting in an increased transaction time in the bitcoin network and also creating a secondary micro-payment platform for transactions.
The central concept behind the lightning network is to allow fast transactions between the users of a particular cryptocurrency off the leading network, and details of such transactions are added only after the completion of such transactions between the two parties.
Suppose I have to make payment for a particular service every week for four months, with lightning network, the details of such transaction is kept between the two parties in the form of a smart contract containing the signature of both parties and each having a copy.
It is only after four months that the overall summary of the whole transaction is added as a block to the blockchain. That is a straightforward illustration, but there are quite a few processes involved. These processes include:
With the lightning network, crypto users get to conduct transactions between one another faster and also reducing the charges involved in the course of the transaction.
With the utilization of the smart contract, it is impossible to cheat or scam the other party as the signature from both parties is required to complete a transaction and, therefore, still maintaining the integrity, privacy, and security of the blockchain network.
The network was launched in 2018 and was open to being tested on the bitcoin network. ACINQ is the company behind the implementation of the lightning network; the company is head by Pierre-Marie Padiou.
Lighting labs handled the first lightning network implementation, Olaoluwa Osuntokun is the current CTO of the company.
The lightning network was created due to the slow processing rate of the bitcoin network, which is currently the most used cryptocurrency, which dropped to 7 transactions per second due to the increased traffic on the network.
You cannot invest directly in the lightning network as it is only a micro-payment network set-up on a primary system; however, investing in the primary network is an indirect investment in the lightning network.
The Stellar network, which is in connection with the bitcoin lightning network, is also a secondary way to invest in the lightning network.
The stellar network can process 4000 transactions per second, and the fee for processing 400,000 transactions on the network is relatively cheap.
Compared to bitcoin’s recent processing rate of 7 transactions per second, the lightning network is a massive upgrade, and it offers the fastest transaction processing rate.
The lightning network is in the testing phase and, therefore, is currently being tested on the most used cryptocurrency in the world, Bitcoin.
If the lighting network can succeed in the bitcoin network, it will work on other cryptocurrency networks with fewer users.
Bitcoin currently possesses the highest usage in the cryptocurrency world and, therefore, experiencing the problem of scalability the most. If the project passes the test stage, it will be made available to other cryptocurrency networks.
But it is only logical to run the first test on the network mostly affected by the scalability problem, Bitcoin network.
So the answer to if the lightning network is made for bitcoin is NO, the lightning network is made for all cryptocurrencies but is currently in the test stage on the bitcoin network.
According to 1ml, the Bitcoin lighting network currently has a total number of 10,125 nodes and 35,180 channels.
Only 5,842 of these nodes have an active channel, and for every 24 hours, 10 new nodes are being added to the network. Also, for every 24 hours, 90 new channel is added to the system, the channels have an average channel capacity of 0.023 BTC and an average channel age of 214.7days.
The lightning network has a current network capacity of 817.62 BTC, the network charges a median base fee, and fee rate of 1.0 sat, and 0.000001 sat respectively. Below is a general overview of the stats of the lightning network:
Number of Nodes: 10,125
Number of Channels: 35,180
Network Capacity: 817.62 BTC
Node Countdown: 989,875
Nodes With Active Channels: 5,842
New Nodes Added Every 24 Hours: 10
New Channels Added Every 24 Hours: 90
Channel Countdown: 964,820
Nodes with Public IP: 3,629
Updated Nodes Every 24 Hours: 227
Updated Channels Every 24 Hours: 24,498
Capacity Countdown: 999,182
Average Channel Capacity: 0.023 BTC
Layer 1 Capacity Ratio: 0.003893%
Average Node Age: 313.0 Days
Average Channel Age: 214.7
Average Channel Per Node: 12.04
Median Base Fee: 1.0000000 sat
Median Fee Rate: 0.000001 sat
The lightning network is a new transaction network and still in the testing stage, has few modifications to reach the full potential, and gives its user the smooth and fast transaction they desire.
The pros and cons of the lightning network:
The Lightning Network is an exciting addition to the crypto space.
The question I want to leave you with is, Are the Cons worth it? It will help the space but could lead to some major vulnerabilities.
Maybe it will be better to leave Bitcoin as a store of value or for large purchases like cars and homes. While other currencies like Litecoin or Energi are used for everyday transactions like coffee and groceries.
Time will tell but for now I’m excited to see where this leads the crypto space.
Be sure you are taking care of the storage and your privacy while getting into the crypto space. If you are not sure where to begin take a look at our Battle-Tested Crypto Tools that we recommend for some of the most trusted tools available.