What Is A Lightning Network?
A Lightning Network is a second-layer Bitcoin innovation. They allow transactions to be made faster, cheaper, and quicker. Lightening networks solve the problem of scalability, which has limited the use of cryptocurrencies.
The scalability problem is the incapacity of a blockchain to perform a vast number of transactions within a short frame of time. This problem is associated with the growth and widespread adoption of cryptocurrencies. As developed as the Bitcoin blockchain is, only 4.6 transactions are performed every second. This slow transaction speed has been a major point of concern for organizations and institutions that would have been otherwise willing to adopt blockchain usage.
A lightning network takes cryptocurrency transactions off the leading network allowing them to be performed more rapidly and less costly. Transaction fees usually increase with increasing unconfirmed transactions in a blockchain, and lightning networks reduce these transaction costs by decongesting the main chain. This type of network was first described in 2015 by Joseph Poon, an American researcher on blockchain scalability, and Thaddeus Dryja. A lightning network still mimics the properties of a blockchain like decentralization, high security, and immutability.
Simply put, a transaction on the main chain of a network usually involves the transfer of all the information on the transaction to all the nodes in the network. This process which was initially meant to ensure the security of the system, takes time to execute. On the other hand, a lightning network reduces this transaction time through micropayment channels that create a relationship between two parties, reducing the information sent to the blockchain. The balance between the two parties is eventually netted out later without the possibility of any of the parties defaulting. The pros are clear – it’s much cheaper to transact, and Bitcoin can shed some criticism on not being able to transact efficiently.
The main disadvantage of lightning networks is reducing security and transparency on a transaction basis but not on a network basis. Some people also believe that the reduced transaction fees associated with using a lightning network are nasty for the sustenance of the blockchain. Another drawback is that transactions are entirely online and dependent on the presence of another peer.
Lightning Network Example
To help keep up with transactions and not compromise on the speed, lightning networks have been very useful and are massive improvements that aid digital transactions overall.« Back to Glossary Index