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Bitcoin Lightning Network – Concept and Operation

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At the beginning of Bitcoin everything related to this cryptocurrency was wonderful and perfect, many people could make transactions or payments from anywhere in the world without high commissions; really the first years of Bitcoin were wonderful, despite not being as popular as it is today.

And perhaps something that many did not know is that as the popularity of Bitcoin increased, a silent problem grew more and more, this problem was the transactional scalability of this currency against others or against the needs of its own network.

But what is the “Scalability” of a cryptocurrency? When we talk about this problem, we are referring to the technical or infrastructure inability of a Blockchain network to be able to carry out a large number of transactions per second smoothly, this being a big problem in the first cryptocurrencies on the market.

In its beginnings, Bitcoin was only capable of processing around 6 transactions per second, which was enough to function optimally in its beginnings, but as the number of users grew, it needed new modifications in its technological infrastructure to calm down a bit. This problem, reaching such a point where something more powerful was required to be able to eradicate this.

In this way we got to know the Bitcoin Lightning Network, due to this transactional scalability problem, but what does this network consist of and what does it benefit Bitcoin users?

Bitcoin Lightning Network

Bitcoin Lightning Network is a transaction protocol designed to improve the scalability of the network. This new protocol works in conjunction with the original protocol since the lightning network operates on the second layer of Bitcoin, which does not directly affect the original code. Thanks to this improvement in the network, Bitcoin users can carry out transactions almost instantly and with very low commissions, which has a positive impact on the scalability of the blockchain.

Its creation was possible thanks to the fact that this problem directly affected all users, which is why various researchers undertook the task of developing a process that will drastically improve the scalability of Bitcoin, but they were Joseph Poon and Thaddeus Dryj those who designed what is now known as the Lightning Network.

To make another Bitcoin payment channel like the Lightning Network work, it depends on some technical factors and a set of existing features that are necessary to make this process safe to use. The first characteristic that had to be present for the proper functioning of the Lightning Network was the guarantee of non-malleability of the crypto asset, with this it is guaranteed that a third party could not alter the information about the transactions in the verification process, this being something that already Bitcoin had SegWit integration.

And through these characteristics and other technical functions it was possible to implement the Lightning Network as a whole of its new types of payment channels, the latter being a fundamental pillar in the operation of the Lightning Network and improved scalability in the operations of the bitcoin network.

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How Lightning Network works

The Lightning Network protocol allows users of the Bitcoin network to create a payment channel between two users, which acts much like a standard transaction between a merchant and a customer. By creating this payment system, it allows participating users to send an unlimited number of transactions that are executed almost instantly and compared to standard Bitcoin shipments, they are much cheaper.

It is designed in this way since it is intended to act as a small accounting book so that users can carry out transactions of common goods and services or that are required on a day-to-day basis such as buying a coffee, paying for a newspaper, etc and all this without congesting the main Bitcoin Network with these small transactions.

In order to make use of payments with the Lightning Network, the user who is going to make the payment must anchor or block a certain amount of bitcoins in the network. Once this balance blocking process has been carried out, the receiving user can settle the amounts that have been agreed with the issuing user or in this case a client. A particularity of this process is that if the client wants to keep the channel open, either to carry out another operation or another purchase, they can choose to add more balance in bitcoins constantly.

By implementing a Lightning Network channel, the two parties can perform multiple transactions or operations with each other for a limited time and at a low cost, in contrast to ordinary transactions on the Bitcoin blockchain. By implementing their own ledger in each lightning network channel, transactions can be executed almost instantaneously without the need to pass said information to the Blockchain, in this way they can carry out a considerable number of transactions between users quickly and at a low cost. When the channel is closed, the balance resulting from said transactions and the transactional information will be integrated into the main Bitcoin Network.

Through this modality, users who use Bitcoin as a transfer of value can enjoy a fast and extremely cheap network, also helping with the old problem of scalability and equating their own system to that of the fastest cryptocurrencies today.

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No, let’s remember that the Lightning Network is a functionality within Bitcoin that any user can use, however this is not mandatory and they can also use the main network at any time.

In a way, yes, but with nuances. Although it is true that transactions are almost instantaneous, they are effective once the Lightning Network channel is closed. However, a more important point is how many bitcoins can be transferred depending on the channel.

It all depends on the channel and how many Bitcoins were blocked to be able to execute transactions through the Lightning Network, however there are channels that allow the transfer of a maximum of 500 BTC, which is a significant amount.

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