The haters are in full effect, desperately trying to argue Bitcoin's irrelevancy, but, fortunately, there is the Bitcoin Lightning Network. The Bitcoin Lightning Network is being promoted as the solution to scalability issues. It rectifies these problems and ushers in a new era of development aimed at fostering mass adoption of cryptocurrency. In this article, I will make sure the Bitcoin Lightning Network is explained clearly, helping you learn cryptocurrency to focus your investment strategy. Bitcoin might be the first digital currency, but Bitcoin microtransactions are required to bring about global implementation. Let’s take a look at how this is going to happen.
Bitcoin’s Current Challenges
• Slow transaction times. Depending on the demand, users will experience wait times anywhere from 10 minutes to 10,000 minutes.
• High Transaction fees. When demand for transactions increases, miners charge higher fees. During
extremely busy times, these fees can dwarf the amount of Bitcoin being moved – making microtransactions economically unfeasible.
•No scalability. The larger the network becomes, the slower and more expensive using Bitcoin becomes. If it’s going to disrupt the payments industry, it needs to be large enough to facilitate global transactions.
The Bitcoin Lightning Network Explained
The main Bitcoin blockchain records and validates every transaction as it happens. This is what adds trust to a peer to peer network, but validating each transaction individually is not practical for scaling. The Lightning Network is a layer two solution built on the Bitcoin protocol. You can think of it like an application built on top of Bitcoin to help facilitate transactions. It allows for transactions to happen off the blockchain helping with bitcoin scaling. In other words, off-chain transactions help with scaling by taking the load off of the main chain.
To sum up- the lightning network provides an environment for off-chain transactions to occur, and every so often the resulting transactions are pushed to the main chain to be recorded publicly.
Source: woobull.com
Keep in mind that Bitcoin is meant to be a digital currency, the keyword here being currency (money). For Bitcoin to take the place of money it needs to be just as easy to use. Layer two solutions are doing just that. I explain the Bitcoin Lightning Network below to help you understand the massive potential it has.
Bitcoin Lightning Network Explained
You are going to your local coffee shop and want to use Bitcoin. When you make a transaction on the lightning network, it happens instantaneously. First, you set up a payment channel. Sounds confusing? This is simply a secure account that manages your funds on the lightning network. Think of it like putting money in escrow. The coffee shop has its own payment channel. Good user interfaces will make this form of Bitcoin micropayments as simple as Venmo.
The funds for the coffee are held in the payment channel. The shop can see it and they give you your drink. The cafe can withdraw their Bitcoin whenever they want to.
Facilitating Bitcoin Micropayments
The underlying Bitcoin blockchain is too bulky to allow for micropayments. What is digital currency other than a value transaction? Building an additional layer of value transfer on top of the blockchain creates a faster method of exchange. This second layer is made up of people’s lightning wallets – which we can think of as nodes. Together, every person using the network is helping to maintain it. The Lightning Network is made up of different nodes.
The Bitcoin lightning network explained:
A node is a computer running the Lightning Network.
The Lightning Network sends transactions via the most efficient route possible.
The more nodes in a network, the faster transactions will complete.
Low transaction fees facilitate bitcoin micropayments.
Entering the Age of Two-Layer Solutions for Bitcoin
Blockchain and cryptocurrency are pieces of the same puzzle. The blockchain is built on a straightforward idea: every transaction completed relies on the previous one. Immutable and robust, Bitcoin implements a blockchain as its underlying foundation.
The beauty of blockchain and cryptocurrency is that other protocols can be built on top of it. Developers can put a second layer of code on top of the existing protocol to help with Bitcoin scaling. It’s the same principle as creating a program that runs on the internet. Think of Google as a layer two solution for searching around the internet. The Lightning Network is a second layer program built to solve scalability issues affecting Bitcoin. It creates an ecosystem where multiple nodes can scale up indefinitely. Ideally, the tech will allow for Bitcoin micropayments without requiring the invention of a new coin.
Other Two Layer Solutions
The Bitcoin Lightning Network is only one of the numerous protocols being built. Other solutions provide an exciting glimpse into the future of cryptocurrency. Faster mainstream adoption will follow in the wake of the following upgrades:
Atomic Swaps
Allow for different tokens, on different blockchains, to be traded with one another. Example: You have 1 Bitcoin and want Monero. A user on the Monero blockchain will set up a payment channel, as will you on Bitcoin. This channel generates a cryptographic proof, automating trust for the trade. Each person then approves the transaction, which completes the trade. Thus, decentralized trading occurs without needing a 3rd party.1-1 Payment Channels
Similar to the lightning network, but instead of being part of a larger group of nodes, this transaction method only has 2 wallets. It allows for infinite transactions to be sent back and forth without being slowed down by the underlying blockchain. Potential uses are for businesses who move large amounts of value between each other. It can also be used between friends and family members for bitcoin micropayments.RSK
Short for RootStock, is a sidechain built on Bitcoin. Its purpose is to facilitate smart contracts with 10-second block confirmation and a theoretical limit of 2,000 t/x. This second layer solution has the ability to automate the existing bureaucracy surrounding legal documents.
These developing solutions are in response to the market demands for Bitcoin scaling. As developers continue to perfect their layer two solution, good UI will follow, helping to speed mass adoption mass adoption. As it stands now, the only people using crypto are the ones who understand it. After solutions become easy to use, adoption of blockchain and cryptocurrency technology will happen with individuals unaware of the underlying protocols.
Learn Cryptocurrency – It’s All About the Technology
Understanding the technology? That sounds like a boring lecture for nerds. Luckily, I’ve done the bulk of the research for you. No need to read the source code, but it is important to understand the underlying technologies. As new tech layers are added to popular blockchains, the crypto space will continue to evolve. Changes will not happen on a linear scale, instead, they will be exponential. Conceptually understanding the technology will help you invest smarter.
• Find Good Content Sources
If Forbes articles are all you read before investing in crypto - you’re going to have a bad time. Look for knowledgeable websites that have dedicated teams doing the research for you.
• More Than Market Trends
Reading the cryptomarkets is one thing, but without a solid understanding of what is digital currency, you won’t understand why things are moving the way they are. Read about your favorite coins and get excited about the tech they offer.
• Become a More Efficient Investor
Your investments will shape the future of crypto. Many of these projects are solutions to real-world problems. See something you like? Invest! Your money will help shape the future of crypto.
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