Bitcoin is the first-mover, it’s the OG, it’s the king. However, in 2017, the “king” of cryptocurrencies no longer has dominance in the market of over 50%. Congestion flaring up on the network like never before toward the end of the year, causing confirmation times and transaction fees to skyrocket to as much as $40 per transaction.
Now, to be clear, BTC hasn’t come anywhere near dying however within the ongoing scaling war with competitors like Bitcoin Cash (BCH), its current growing pains are evidently felt throughout the ecosystem over the past few months. There is a consensus in the community about one thing, Bitcoin scaling must happen sooner rather than later, and that’s where the Lightning Network (LN) comes in. If the Lightning Network delivers on its guarantees, then Bitcoin may before long be seeing thousands of transactions per second capacity and near instant confirmation times.
So let’s dive into LN: what it’s, how it works, and also the controversies around it for a little perspective.
Bitcoin needs to Scale pronto
Bitcoin is a revolutionary technology, however its seven transactions-per-second turnout at the present 1MB block size became a bottleneck in 2017 as mainstream adoption appeared to begin knock at the door, e.g. Goldman Sachs’ forthcoming cryptocurrency trading desk. The consistent roulette of surges and adoption developments had new users flocking to BTC in droves, that seriously slowed the as-yet unscaled legacy Bitcoin network.
Simply put, then, Bitcoin needs lots more capacity than seven txs a second. VISA handles 4,000 per second, and for Bitcoin to eventually win out, it’ll got to surpass that marker. And that’s where the Lightning Network comes in.
Lightning Network: the next Step
Lightning Network is the projected second-layer, off-chain solution for Bitcoin’s scalability. It’s the scaling solution being spearheaded by teams among the Bitcoin Core development team, moreover as by the company Blockstream. Blockstream itself bills LN as a “micropayment system that supports high volumes of small payments.”
Such a system can be significantly alleviating if current network congestion is any indication. So let’s get into some of the main points. The idea behind Lightning Network is that tiny txs don’t get to be stored on the main blockchain. Take these payments off-chain, so alleviating the burden put upon the main BTC blockchain.
How will that work exactly? By opening what’s called state, or payment, channels.
Payment channels are used to facilitate voluminous transactions off-chain, thereafter uploading them all right away at a chosen or fixed time.
Direct Channels Not Necessary
Let’s say you’re trying to conduct business with a merchant through a payment channel, but you don’t have a channel open that’s directly linked to that merchant. That won’t be a problem with the Lightning Network as a result of the layer two scaling solution tries to search out the fastest route from A to B using already open and available channels.
Bitcoin’s Proof-of-Stake (POS)?
Andreas Antonopoulos has advised that he considers LN to be like Bitcoin’s version of POS. Because, like staking, Bitcoin users will be ready deposit BTC into designated addresses and accrue dividends for facilitating transactions.
Now, this POS-like dynamic actually doesn’t bring the environmental relief that staking can bring, however it does bring an additional edge to Bitcoin that might make it all the more enticing to holders going forward.
Hash Time-Locked Contracts (HTLC)
Hash time-locked contracts are going to facilitate close out channels once a given amount of time. Thus users who open up channels between themselves can set up an HTLC which will close that channel out after, say, 30 days.
Critiques against Lightning Network
One of the oldest critiques against LN is that it’s been in development for too long. It had been alleged to be ready some time ago, however the Bitcoin project due to it’s size and adoption is said to be slow moving. Rome wasn’t built in a day, as it were, however the absence of LN is being acutely felt right now as network congestion has reached unprecedented levels in recent weeks.