Lightning Network

What Is the Lightning Network?

The lightning network is a second layer technology applied to bitcoin that uses micropayment channels to scale its blockchain’s capability to conduct transactions more efficiently. Transactions conducted on lightning networks are faster, less costly, and more readily confirmed than those conducted directly on the bitcoin blockchain (i.e., on-chain).

By taking transactions away from the main blockchain and making them off-chain, the lightning network was designed to de-congest the bitcoin blockchain and reduce associated transaction fees. The lightning network can also be used to conduct other types of off-chain transactions involving exchanges between cryptocurrencies.

Understanding the Lightning Network

If it is to achieve its potential of becoming a medium for daily transactions, bitcoin will need to reach tens or hundreds of thousands of transactions per second, similar to credit cards or electronic payments networks. Due to the nature of its decentralized technology that requires consensus from all nodes within its network, bitcoin is laden with such problems in its current state.

For example, approving and storing transactions will become expensive and time-consuming if their numbers on bitcoin’s network multiply. An increase in transaction numbers also requires orders of magnitude improvement in the processing power of the computers that are required to execute transactions involving bitcoin. Additionally, the energy necessary to compute this information is enormous, making maintaining bitcoin for day-to-day transactions prohibitively expensive.

The lightning network proposed to solve the scaling problem by creating a second layer on bitcoin’s main blockchain. That second layer consists