The bitcoin cash rocket has surged again; and I thought this was the perfect time to discuss bitcoin scaling (making bitcoin faster) and the lightning network.
Bitcoin has a relatively small 1 MB block size limit; making it slow compared to the newer cryptocurrencies. This means that bitcoin is capable of processing only seven transactions per second; which at the time was more than enough to handle the network in its fledgling stages. Most bitcoin enthusiasts believe an increase in speed is important.
What makes bitcoin and bitcoin cash different is their block size limit. Bitcoin cash has a block size limit of 8 MB — eight times more than Bitcoin. This allows it to process more transactions, speed up processing times, and in turn reduce fees. The block limit size of the bitcoin blockchain can be considered a hindrance to bitcoin's growth. However, the downside to increasing block limit size is the ability for smaller miners to help validate transactions. This can lead to the major miners centralizing the mining power and therefore creating influence. There is a significant political debate behind the bitcoin / bitcoin cash fork which is too in-depth to go into within this article.
The scaling of bitcoin has been a fiercely debated topic for quite a while now and the lightning network is considered a possible solution to enhancing the bitcoin transaction area. The lightning network is a level two network that interfaces with bitcoin to make transactions faster. It is therefore not a 'fork' of bitcoin.
What the lightning network proposes is to allow transactions to occur outside of the blockchain using bitcoin scripting (smart contracts). This makes it possible to create a secure network of participants to transact with.
Allowing transactions to occur outside of the blockchain, enables participants to send each other micro transactions at high speed without the need for the transaction to be updated on the blockchain every single time. When both participants no longer need to transact with one another, only then will the blockchain update. This minimises verfication on the blockchain and transaction times. To connect everyone together, the lightning network uses already existing relationships to find others. This avoids going back into the blockchain (see below example).
The lightning network summarises it's advantage as the following: (the lightning network) “is similar to how one makes many legal contracts with others, but one does not go to court every time a contract is made”.
By Andrew Butler of CryptoCult
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