Wednesday W.O.W - The Bitcoin Lightning Network ⚡₿⚡
[5 min read] Your mid-week bite sized treat on emerging tech on our journey to the Metaverse. Learn about the Lightning Network, a game-changer that unlocks the true potential of Bitcoin.
A nibble of knowledge in your inbox every Wednesday with a simple format:
🇼 What the technology is
🇴 Objective(s) - what is it trying to achieve, with some examples
🇼 Why it is important to users as well as businesses & brands.
This is week 25 of the 520 weeks of writing I have committed to, a decade of documenting our physical and digital lives converge.
🇼 What is the Lightning ⚡ Network?
Despite its numerous benefits, Bitcoin has long been criticized for its scalability issues. It is deliberately designed to maximise decentralisation and security, meaning that scalability (ie speed) is low
With a processing capacity of only a few transactions per second, Bitcoin's transaction speed is significantly slower than traditional payment processors like VISA, making it unsuitable for everyday payments. That's where the Bitcoin Lightning Network comes in!
The Lightning Network is a second-layer payment protocol developed by Lightning Labs to enhance the capabilities of Bitcoin. It is a network of micropayment channels that allows users to send and receive payments instantaneously and without the high fees associated with Bitcoin transactions. The Lightning Network operates on top of the Bitcoin blockchain, which means that it benefits from the security of the blockchain. It also helps to reduce the congestion on the blockchain, which speeds up transaction times and reduces fees.
Using payment channels, users can send and receive Bitcoin in real-time. The Lightning Network also allows for the creation of smart contracts and multi-signature scripts, which help to ensure that transactions are secure and reliable. By enabling off-chain transactions, the Lightning Network helps to reduce the energy consumption associated with Bitcoin transactions.
🇴 What objectives is the Lightning ⚡ Network trying to achieve?
The Lightning Network aims to solve Bitcoin's scalability issue by enabling instant, low-cost transactions that can be made without the approval of the Bitcoin network. It establishes a network of payment channels between users, enabling quick and safe transactions without needing the approval of the Bitcoin network.
Each node must place a particular bitcoin amount into a channel to access the Lightning Network. This ensures the node won't defraud or steal any money. When two nodes wish to communicate, they create a channel and engage in as many transactions as they like. When everything is done, they terminate the channel and send the Bitcoin to the right addresses.
The Lightning Network has the potential to boost transaction speed and efficiency while lowering fees. It could have a significant impact on the financial system as it develops and gets better.
🇼 Why could Lightning ⚡ Network be important to the future of payments?
The Lightning Network's benefits make it an attractive option for both the public as well as merchants. Here are some reasons why:
Instant transactions: The Lightning Network allows for instant transactions between users on the Bitcoin network.
Low fees: The Lightning Network allows for low transaction fees, making transacting on the Bitcoin network cheaper (less than a 10th of a cent)
Scalability: The Lightning Network improves the scalability of the Bitcoin network, allowing for more transactions to be processed per second (approx 1,000,000/sec)
However, there are also some potential downsides to the Lightning Network. It could lead to the centralization of the network over time and potential security risks. Your lightning wallet should be like cash in your wallet, don’t carry too much just in case! Additionally, the Lightning Network requires users to have the liquidity to open payment channels, which could limit its adoption by users who do not have enough Bitcoin to fund channels.
Despite these potential downsides, the Lightning Network has seen steady growth since its launch in 2018. As of today, there are over 72,000 Lightning Network active channels, with around 16,000 online nodes. The total capacity of the Lightning Network has reached over 5,300 BTC, worth over $144 million USD. This growth indicates that the Lightning Network is becoming a more attractive option for users who want to transact Bitcoin quickly and efficiently.
In conclusion, the Lightning Network is a game-changer that unlocks the true potential of Bitcoin. It offers a lightning-fast and cost-effective solution for everyday payments, benefiting individuals and organizations alike. Whether you choose to invest directly in the Lightning Network or indirectly through Bitcoin, you're embarking on a thrilling journey at the forefront of revolutionary technology. Embrace the power of lightning and witness the transformation of the financial landscape!
That’s all for this week! If you have any organisations in mind that could benefit from learning about emerging technology, be sure to reach out. Educational workshops are one of many consulting services I offer.