Lightning Network
Tags: Cryptocurrency, Network, Technology, Blockchain, Lighting

Lightning Network- a technology associated very closely with the Digital world, the world of Cryptocurrencies.

What exactly is Lightning Network? How does it affect the Crypto world? Is it beneficial to all of us, directly or indirectly?

Find the answers out to all of this and more…

What is it?

It is a version of technology that’s meant to make CryptoCurrency payments faster and cheaper. Lightning network is a ‘second layer’ payment protocol that operates on top of a Blockchain (linked and secured list of records, called blocks). Initially, it was designed for Bitcoin, but now the technology is being developed for a range of CryptoCurrencies (like- Litecoin, Stellar, Ether, Ripple, etc.).

It was developed by multiple parties including Lightning Labs, Elements Project and ACINQ. Joseph Poon and Thraddeus Dryja wrote the Lightning White Paper. Its specification was announced after this paper.

Lightning network basically features a peer- to-peer system to make transactions or payments for CryptoCurrency. It enables instant back and forth transactions between two parties, which are secure and occur in a trustless fashion (i.e you don’t need to trust or even know anything about your counter party).

Design

As mentioned above, it works on a Peer-to Peer system to make payments on a network of bidirectional payment channels. Lightning network comes to use when-

Opening a payment channel

(by committing a funding transaction to a relevant Blockchain)

(by committing a funding transaction to a relevant Blockchain) Then making any number of lightning transactions

(that update the tentative distribution of channel’s funds, without broadcasting to the Blockchain)

This avoids delays and costs that results from recording these transactions each time.

(that update the tentative distribution of channel’s funds, without broadcasting to the Blockchain) This avoids delays and costs that results from recording these transactions each time. Finally, closing the payment channel

(by broadcasting final version of transactions, to distribute the channel’s funds, only the resulting balances are recorded on the Blockchain, not the full transaction history of the channel)

There is no recorded time for channel to be closed, its optional and can remain open for months and years.

To perform these actions, the Lightning Network requires a Malleability Fix, such as SegWit (Segregated Witness, in Bitcoin).

Working Principles

Two parties who wish to transact with each other setup a multisig wallet

(that requires multiple signature to make a transaction; this wallet holds some amount of Bitcoin).

(that requires multiple signature to make a transaction; this wallet holds some amount of Bitcoin). Wallet address is saved to Bitcoin Blockchain.

This sets up the payment channel.

These two parties can conduct unlimited number of transactions.

(without touching the information stored on the Blockchain)

(without touching the information stored on the Blockchain) With each transaction, both parties sign a balance sheet

(it reflects the amount of Bitcoin that belongs to each one of them)

(it reflects the amount of Bitcoin that belongs to each one of them) When two parties are done with making the transactions, they close this channel

(now, the final balance belonging to each party is stored on the Blockchain)

Lightening Network- A Solution

Lightning network has been proved to be solution for the problem of Bitcoin Scalability. Bitcoin Scalability refers to the discussion concerning the limits on the amount of transactions the bitcoin network can process. It is related to the fact that records (known as blocks) in the bitcoin Blockchain are limited in size and frequency.

Advantages

Bitcoin has become Digital Gold or a new source of investment to many, but getting these high-end CryptoCurrencies as digital money (the original purpose of Cryptos) seems hard for now, as the transaction fees have jumped to as high as $50.

Enthusiasts say this technology- Lightning Network, will solve these problems with fees at a fraction of a cent and instantaneous transactions.