Bitcoin, and other cryptocurrencies to a lesser extent, has seen incredible interest in the last year or two. The cryptocurrency has soared in value, and more and more investors are interested in putting their money into the network. However, this increase in interest has not come without a price. Traffic on the bitcoin platform has slowed, and costs per transaction have risen significantly. The Lightning Network is one attempt at addressing those challenges.
SegWit and the Lightning Network are different attempts to address the same problems, namely, scalability, security and rising costs. SegWit went into effect in the last quarter of 2017, but it has been slow to show results. Adoption has not become widespread, despite notable cryptocurrencies like Nano using it. The Lighting Network is seen as the next best thing, and is expected to see higher adoption rates than SegWit did.
Overcoming Bitcoin’s Built-In Flaws
If you listen to many dyed in the wool pundits, bitcoin has no flaws, but that’s obviously not true at even a cursory examination. For instance, it can take a full 10 minutes for miners to move data to a new block, and it is actually quite common for there to be lengthy backlogs of data waiting to be moved. That means bitcoin is actually quite slow and inefficient. There is also the problem of fees – in early 2018, it cost $14 to process a single payment into a block. The cost is the same for any payment of any size, which means that small transactions might incur more in fees than the transaction was worth. The Lightning Network was dreamed up to do away with those flaws.
What Is the Lightning Network?
You can think of the Lightning Network was an invisible overlay that works on top of a cryptocurrency network. Technically, it can run over the top of most any crypto platform, but it is most often used with bitcoin. It operates as something of a second layer, allowing traffic and transactions to be rerouted to this pseudo network, while freeing up the resources of the deeper network.
The results are improvements in transaction speed, reductions in transaction cost, and better security. Rusty Russell, a bitcoin developer and Lightning Network developer, explained in an article for Wired magazine, “When you first heard about bitcoin, you probably heard about instant payments around the world for free. But if you dug into it, it wasn’t really that cheap, and it was never instant. Lightning actually does those things.”
Better Real-World Utility
Another goal of the Lightning Network was to make bitcoin more usable for everyday transactions. The bitcoin network is only able to handle between three and seven transactions per second. Compare that to the Visa credit card system, which can handle thousands of transactions per second. The result is that bitcoin is actually far slower than credit cards, and that limits the cryptocurrency’s adoption by consumers, as well as its use as an everyday currency for the purchase goods and services.
The Lightning Network allows bitcoin to:
- Support far more transactions than previously possible
- Improve transaction speed to near instantaneous
- Provide better reliability
- Reduce transaction costs significantly
- Remain free of the influence of banks and financial institutions
Ultimately, the Lightning Network remains in its infancy. Version 1.0 debuted in late 2017/early 2018, and while it has been successful, it is very limited. Further development and refinement are necessary, and are ongoing. However, ultimately, this network promises to make bitcoin what it was always supposed to be – fast, cheap and safe.