Lightning Network, Explained

Lightning Network

As most of you know by now, The Lightning Network was recently added on top of the Bitcoin blockchain, but what exactly is The Lightning Network and how does it work?

Basically it’s a “second layer” payment protocol which is seen as the most convenient solution to Bitcoins scaling issues. It enables both faster and cheaper transactions which wouldn’t be possible on the current blockchain. The Lightning Network sits on top of the blockchain
and is comprised of user-generated channels which securely send payments back and forth.

So how does it work? Well, to keep it simple, two parties who wish to send and receive transactions set up a multisignature wallet which holds some Bitcoin. The wallet address is then saved to the Bitcoin blockchain allowing for the payment channel to be set up. Through this channel, the two parties can begin making an unlimited amount of transactions without ever involving the information stored on the blockchain. With each transaction, both the sender and the receiver of the transaction have to update the balance sheet. This is done in order to always make sure how much bitcoin in the wallet belongs to each party. Once the two parties are done creating transactions with each other, they close the channel and the net balance is registered on the blockchain.

The first beta was released on the 15th of March and we are now starting to see more and more usage of this payment protocol. It’s still being worked on and the team itself has gone out and told users that it’s mainly made for developers and that users only should experiment with smaller amounts of Bitcoin.

Whether The Lightning Network becomes a long-lasting solution to Bitcoins scaling issues can only be told by time however it’s one step closer towards adoption.

Legal disclaimer: This is only my personal opinion, make of it what you wish. What does this mean? It means it's not advice nor recommendation to either buy or sell anything! It's only meant for informative and entertainment purposes.

Best regards,
Nicholas Stael von Holstein
Starflow