In 2016, two developers named Thaddeus Dryja and Joseph Poon came up with a new protocol called “the lightning network.” It would allow faster and cheaper transactions without having to change the block size.
Bitcoin’s scalability problems mean that even small transactions can clog up the blockchain. In order to fix that, the Bitcoin Lightning Network was made.
In order to process each block on the Bitcoin blockchain, it takes an average of 10 minutes. This means that only a small number of transactions can go through at the same time. They came up with a way to make transactions on the network faster and cheaper without changing the block size. Thaddeus Dryja and Joseph Poon came up with this idea back in 2016. The “Lightning Network” is what they called a group of people.
The Lightning Network is a second layer on top of the bitcoin blockchain that lets people make their own, small-payment channels to speed up transactions.
These transactions are much faster than normal bitcoin transactions because they don’t have to be sent to everyone else in the network, which takes a lot of time and space. Because there are no miners who need to be paid, transaction fees are very low or even non-existent because there are no miners to be paid.
Bitcoin Lightning Network: How the Lightning Network works
Bitcoin’s main blockchain is like a highway, and the Lightning Network is like a network of side streets that make the highway less crowded with smaller transactions.
First, two people who want to do business with each other set up a multi-signature wallet (which requires more than one signature to enact a transaction). It has a lot of bitcoin in it, but we don’t know how much. If you want to be able to send and receive money in both directions, you need to write down your wallet address in the Bitcoin blockchain.
If you want to make a lot of transactions, you don’t have to touch any information that’s stored on a blockchain. Both parties sign an updated balance sheet with each transaction to show how much bitcoin each has. This balance sheet shows how much of the bitcoin each has.
It is on the blockchain when both parties finish their transactions and close the channel. Everyone can use the most recent balance sheet to get their money back if there’s a fight. Read also; Walmart Launch Virtual Shopping in the Metaverse
You don’t need to set up a direct channel to send money on the Lightning Network. You can send money to someone through channels with people you’re connected to. When the network is connected, it automatically finds the best way to get where you want to go. There are no fees or delays when people use the network to make small payments, and that’s its goal.
Where are we now with the Bitcoin Lightning Network?
Lightning Network launched a beta version in 2018, but it wasn’t ready to use at the time. Lightning Network has become more popular since then. The number of nodes on this network has doubled every year, which has helped the project get closer to its goal of making bitcoin a viable currency for everyday use.
It is on the blockchain when both parties finish their transactions and close the channel. Everyone can use the most recent balance sheet to get their money back if there’s a fight.
It went from 8,321 nodes in January 2021 to 19,374 nodes in January 2022, a 132 percent rise. It is important to note that this only includes nodes that are public (nodes accessible to anyone). There are a lot more nodes if you count private connections as well (nodes accessible only to permissioned users).
Even though the Lightning Network has grown a lot in the last few years, it still has a lot of problems to solve if it wants to solve bitcoin’s scalability problems. Security is the most difficult thing. Because nodes on the Lightning Network must be online at all times, they become more vulnerable to attack. Read more; Bitcoin Future in 2022 Is Uncertain Following Record Year
And even though the network wants to cut down on the fees that bitcoin’s main network charges for processing transactions, it has its own set of costs for opening and closing channels, as well as fees for routing. These problems are likely to be solved over time, as its technology gets better and better.
As more people use the technology, exchanges are also getting on board. This makes it easier for their customers to get and deposit Bitcoin. As of January 2022, Kraken hasn’t added the Lightning Network to its service. CoinCorner, VBTC, and OKCoin are now part of the network. In 2022, Block said it was putting the Lightning Network into its popular Cash App, which they had said they were going to do in 2019.
This is what they said they were going to do in 2019. There are a lot of good things about the adoption of Lightning by big exchanges, but most people agree that the Lightning Network will not be the answer to all of bitcoin’s problems. It will still play a big role in cryptocurrency’s future.