Bitcoins Scalability Solution: How the Lightning Network Improves Usability

As Bitcoin has become more popular, the network has struggled to keep up with the increasing demand for transactions. To meet the demand for transaction processing capacity, Bitcoin users have turned to solutions that provide higher throughput.

The Lightning Network is one proposed solution to this problem. It has attracted attention from developers and the larger Bitcoin community alike, and with good reason—it has the potential to completely alter the way we use cryptocurrency.

The Lightning Network is a layer 2 payment protocol. It enables fast, cheap payments between participating nodes. The Lightning Network allows you to send and receive Bitcoin transactions instantly at almost no cost.

How does it work? 

The Lightning Network creates a network of payment channels between users that allows them to instantly send and receive bitcoin between each other without waiting for transactions to confirm on the blockchain. 

These payment channels are secured by smart contracts and only broadcast to the blockchain when the channel is closed. This means Bitcoin transactions on the Lightning Network take place almost instantly and with minimal fees. 

Since payments are made off-chain, the Lightning Network avoids the Bitcoin block size limit and high on-chain fees. Micro-transactions that were previously not possible due to fees become a reality.

Quick transactions are made possible by the payment channels that the Lightning Network establishes between users. Instead of waiting for Bitcoin block confirmations, payments are instantly forwarded between channel participants. This means you can pay for your coffee with Bitcoin and be on your way in seconds.

With the Lightning Network, Bitcoin apps and payment processors can build easy-to-use interfaces for end users. Scan a QR code to instantly pay, swipe a Lightning-enabled debit card, or tap to pay with your mobile wallet. A whole new wave of user-friendly Bitcoin applications is made possible by the increased speed and decreased transaction costs.

Lightning payments are more private than on-chain Bitcoin transactions. Your payment details and amounts are not recorded on the public blockchain only when you open and close your channel. 

Lightning also uses an onion routing protocol to obfuscate the path of your payments. However, it’s important to note that Lightning does not provide anonymity and transactions can potentially still be traced. For some, Lightning may provide sufficient privacy, but for others, more advanced solutions may be needed.

Though it is still in its early stages, the Lightning Network is expanding significantly. The power of the Lightning Network comes from its network effect. As more nodes join and open payment channels between each other, the total value and volume of payments the network can handle increases exponentially.

As the Lightning Network grows, more mainstream traders will start accepting Lightning payments. Some major corporations like AT&T, Dish Networks, and Microsoft already accept Bitcoin, and adding Lightning support is a natural next step.

Suffice it to say that more work still needs to be put in before the Lightning Network can become widely accepted and fortify its infrastructure. Bitcoin’s best days are still ahead, and tools like the Lightning Network will help make cryptocurrency a part of everyday life.

Image Source: Adobe Stock

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.