Bitcoin is the first ever cryptocurrency to float the market. It is also the most valuable cryptocurrency in the world and has the largest Market Cap, with a December 2017 peak of one BTC equalling over 19000 USD per Bitcoin. Representing a near 1000% increase over a 12-month period. Bitcoin is the most widely adopted and utilized cryptocurrency and due to this, it has been experiencing some difficulties.
While Bitcoin may have seen its best historic year in 2017 in terms of adoption in the mainstream, it incurred some huge problems as well. The Bitcoin network got slowed down due to the high number of users accessing it, because of the huge demand for it in the market. This cause some major disadvantages as transaction processing and transaction fees skyrocketed. Talks have been going on for years as to what could be the best solution to bring the Bitcoin network to allow more transactions per second then the current 7 that the network is able to deliver. already. This led to the community being divided as to what the best solution will be. This caused the fork of Bitcoin to increase block capacity to 8mb known as “Bitcoin Cash” $BCH. This is also where the suggestion of the Lightning Network came in, a 2nd layer method used to increase the transaction capacity without the need for a block size increase.
At the current time, the Bitcoin network speed is around 7 transactions per second for 1MB of block size. However, as at the end of 2017, users started growing in numbers, these speeds were just not enough to handle the network capacity. For a company like Visa, the number of transactions that are done worldwide in a single second is 24,000. Compared to Bitcoin, this is a huge difference, for Bitcoin to compete, more transaction capacity would need to be realized and as quickly as possible. The Lightning Network is a solution that is second-layer, meaning that multiple transactions will take place off the blockchain later to be settled as a group in one effective transaction on the blockchain. The lightning network could potentially increase Bitcoin’s transaction capacity to millions of transactions per second. The Bitcoin core development team, along with the help of the company Blockstream, proposed this plan of launching a system that could support thousands of payments simultaneously. With the amount of traffic on the Bitcoin network, it is very much needed.
The current Bitcoin system stores and locates each and every transaction on the Blockchain, meaning that there is limited space to process multiple transactions at the same time. At the Lightning Network platform, small transactions won’t be saved on the Blockchain. Instead, they will be stored separately and processed as one transaction leaving the main Blockchain as a settlement layer. The smaller transactions will be helped and secured by what is called State or Payment Channels. These Channels help store lots of off-chain transactions and then upload them later at a chosen time.
The 2 layer scaling solution will also eradicate the need of direct channels. When you’re making a transaction with someone who doesn’t have a direct lightning channel linked to you, you can make use of the layer 2 scaling solution. This method uses the Lightning Network to find the quickest route from A to B using channels that are already open and available. This means that now transactions won’t have to go through paths that are long or insecure, but instead just go through the one that is the most accurate and direct path.
Lightning Network: It’s Current State
Although Lightning promises to complete near instant Bitcoin payments with very low fees, it is still very new technology and needs to be thoroughly tested before it is being used in everyday transactions. It’s currently already being used and tested on the Bitcoin Mainnet, it is not yet ready and using it, could mean that you lose your Bitcoin due to a bug in it’s current form. Several users’ have already reported losing Bitcoin due to bugs when it comes to closing payment channels.
We do not recommend trying to use Lightning Network unless you understand the risks and that it may not be ready. There is a chance that you will lose your Bitcoin. Until these issues are addressed, we suggest you wait for the green light by Lightning developers to begin using it safely.