Bitcoin is in buzzword these days. People and businesses all around the world are making investments in bitcoin. These digital currencies offer numerous advantages. Some of the most significant benefits of bitcoins include universal application, fewer transaction fees, and a decentralized way of functioning.
In addition to all these fantastic benefits of bitcoins, the digital currency also comes up with few disadvantages. The most significant loophole associated with bitcoins is the way to tackle bitcoin’s scalability.
If you are following news related to bitcoins on bitcoinfuture.app, you must have heard about bitcoin scalability. Tackling of bitcoin scalability is not an easy task. But with the innovative mind of two developers Thaddeus Dryja and Joseph poon, this was possible.
In a white paper published in 2016, a new concept was discovered, called the Lightning Network. The best part about the lightning network is that it helps in faster and cheaper transactions, but without making any changes in the block size.
What is a lightning network?
The lightning network system enables creating a second layer on top of the bitcoin blockchain technology, and it includes user-generated channels. One of the most significant attributes of bitcoins is that it enables them to send payments securely back and forth without the need for trust among different parties. Thus, no matter if you know a person or not, you can trust them with bitcoin transactions, and the payment can be made securely.
For example, if I want to pay for each minute of video that I watch on a particular channel, a lightning network would be opened. As minutes will pass, my wallet will make periodic payment to the video service provider’s wallet.
Once the video watching session gets over, the channel will be settled as per the bitcoin blockchain’s net amount.
Since the payment and transactions are made between only two parties, you don’t have to broadcast it to the entire network. Thus, it doesn’t take much for the transaction to get completed. The best part about this newly discovered technology is that since no miners are involved in the process, it needs fewer transaction fees, and sometimes almost no transaction fee is applied.
How does the bitcoin Lightning network work?
The process begins when the two parties who are involved in the transaction set us a multi-signature wallet. The multi-signature wallet is one that needs more than one signature for the transaction to go through. The wallet holds the same amount of bitcoins. The wallet address is then saved under the blockchain technology, and thus, a payment channel is easily created.
Once this payment channel is created, an unlimited amount of transactions can occur, that too, without touching any information stored on the blockchain. After each transaction is conducted, both parties need to sign on the updated balance sheet that reflects how much bitcoin stored in the wallet belongs to them. Thus, it gives maximum transparency and ease of information to users.
Once both these parties finish the transaction process, the balance is quickly registered on the blockchain. In case both parties find any dispute, they can use the recently signed balance sheet to get their share of bitcoins that are stored in the wallet. Thus, having a multi-signature wallet does not cause any extra delay or issues, even if parties face disputes.
In addition to this, it is not always essential to set up a direct channel in case you want to transact on lightning. The lighting system also allows you to send payment to others via any other media. The lightning network can easily find the shortest route to make the transaction successful.
Benefits of Lightning network
The development of the lightning network has given a boost to the adoption of SegWit. The SegWit comes up with a layer of protection, and without it, transactions on the lightning network would have been too risky. Thus, even small and microtransactions can be carried out without getting worried about any type of risk with the use of lightning networks.
Developers are continuously exploring different ways to make the lightning network safety proof, and till then, we can just wait for other updates within the system.
We hope this article will help you to know about all the nitty-gritty associated with lightning networks.