Lightning Network
The Lightning Network is a Layer 2 solution on the Bitcoin Blockchain created by Lightning Labs. It is a peer to peer payment channel whose function is to allow instant off-chain transactions, without congesting the Bitcoin Network.
In order to function instantly, the payer must lock a certain amount of Bitcoin into the Lightning Network as credit. This creates a Smart Contract between the pair of users and any transactions can occur between them.
In a previous article, we touched on the Blockchain Trilemma: Decentralization, Security and Scalability. There must be a compromise in one area, in order to satisfy and maximize in the other two areas. The Bitcoin Network lacks the speed and Scalability. This is where the Lightning Network comes in. The Lightning Network aims to maintain the integrity of Security and Decentralization on the Bitcoin Network, while providing instant transactions off-chain.
The Lightning Network is capable of processing 1,000,000 Transactions Per Second (TPS). By comparison, the Bitcoin Network can process only about 7 TPS, while the Visa Credit Card Network can process tens of thousands TPS.
You can read more about the Blockchain Trilemma here:
Benefits of the Lightning Network:
- Allows the Bitcoin Network to be more efficient and scalable
- Lightning Network reduces Network congestion by completing transactions off-chain
- Users are able to send and receive Bitcoin quickly and cheaply
- Bitcoin remains and maintains an open, permissionless, noncustodial, high speed protocol
- Faster Instant micropayments
- Lower and cheaper fees
- Makes Bitcoin more accessible and more convenient
- Increase in adoption and use through day to day Bitcoin payments