Lightning Network is a Bitcoin blockchain layer-2 solution. Blockchain scalability is mostly dependent on layer-2 solutions. Because Lightning Network is associated with Bitcoin (BTC) and can contribute utility value to the chain, it is one of the most important layer-2 solutions.
In this article we will learn what is the Lightning Network, how it works, and all about Lightning Network payments.
What is the Lightning Network?
The Lightning Network, a second layer for BTC, scales the blockchain’s capacity and manages transactions more effectively and affordably by utilizing micropayment channels. It is a technology solution that introduces off-chain transactions to address issues with BTC. A transaction mechanism that allows both parties to send and receive money is called its channel.
There is no official Lightning Network token as the platform uses BTC as its native currency.
Is Lightning Network free?
No. Users incur fees for initiating a channel with a routing node in addition to the usual on-chain transaction fees. The Lightning channel is provided to the main network by the routing node operator at a price. The operator determines the base fee and the rate, which make up fees.
What does the Lightning Network do?
BTC was initially designed to be a decentralized payment system that users could access from anywhere and be anonymous. It gained so much traction that the blockchain was unable to manage the volume of transactions.
The Lightning Network has been in development since its initial proposal by Joseph Poon and Thaddeus Dryja in 2016. BTC’s poor transaction time, throughput, and expenses were the issues that the Lightning Network was designed to address.
Developers built BTC layers to combat sluggish transaction speeds and excessive energy use. The core blockchain is the initial stratum. The secondary layer, which is “on top of” the primary one, adds functionality to the one beneath it. Other kinds of off-chain transactions involving cryptocurrency exchanges can also be handled via the Lightning Network.
How do payments work on the Lightning Network?
Quick micropayments are made possible by the Lightning Network. Compared to the Lightning Network, BTC has a minimum transaction output that is more than 100 times larger. Achieving this use case is crucial for the chain’s usability since fast micropayments are the way of the future for Web3 applications like gaming.
The Lightning Network enables fast micropayments, but they are only feasible if they can be carried out at extremely low transaction costs. The blockchain frequently loses market share to its rivals as a result of inefficient transaction processing and Lightning Network makes sure this doesn’t happen.
X users can utilize the Lightning Network to send and accept Lightning payments in the form of BTC “tips.” Many of X’s 360 million monthly active users may transfer BTC payments to other Twitter accounts immediately and for free using Strike, a payments tool that works with the Lightning Network.
What problems does Lightning Network aim to solve?
The Lightning Network aims to address the following problems:
- Reluctance to confirm transactions: Users that pay greater fees wait longer since their transactions are handled first.
- High energy costs: The BTC blockchain is unaffordable due to the massive amount of energy required to propose a block of transactions through a competitive procedure.
- Making certain that specified recipients get the money to which they are legally entitled: The foundation of the Lightning Network is made up of smart contracts and multi-signatures, which guarantee that money transmitted through the channels reaches the right people.
Users can communicate many transactions to each other without waiting for the slower main net to confirm individual exchanges by opening channels on the Lightning Network.
Parties may transfer money amongst themselves as necessary between a channel’s opening and closing. The transactions are sent to the main net for verification after the channel is closed.
Should I use Bitcoin or Lightning Network?
BTC can be used as a mode of storage and doing transactions on-chain which can be slow and expensive. Alternatively, since there is no separate Lightning Network token, and users can use BTC for transacting BTC with low fees, faster speeds, and making online purchases that require instant settlements.
How do you pay on the Lightning Network?
There isn’t any official Lightning Network app, however, several platforms give the opportunity for users to interact with the Lightning Network. Some of the most commonly used ‘unofficial’ Lightning Network apps include Muun and Wallet of Satoshi.
Is Lightning Network anonymous?
It is possible to track transactions on the BTC blockchain from one wallet to another. Since only the opening and shutting of channels are reported to the chain when using the Lightning Network, the majority of micropayments will be practically impossible to track down.
What is the risk of using Lightning Network?
By having more open links with other companies, companies who invest in Lightning Network nodes may end up becoming similar hubs or centralized nodes in the network. Price volatility, fees, hacking, and fraud are further issues.
