• Lightning Network is used for off-chain transactions and allows users to make payments in a safe and secure manner.
• Bitcoin’s gain in popularity forced demand for a better transaction system.

The Lightning Network is a second layer of Bitcoin that handles transactions more efficiently and affordably by using micropayment channels to increase Bitcoin’s functionality. Lightning network technology allows off-chain transactions and it also allows two or more parties to make or receive payments from one another.

Initially, Bitcoin was supposed to be a decentralised payment system that users could use anonymously from anywhere. Bitcoin was never intended to be scalable or wasn’t thought that it would grow at such a big scale. However, the increase in Bitcoin’s popularity demanded a solution.

Then came the Lightning Network. To address issues such as poor transaction speeds and excessive energy consumption developers constructed cryptocurrency layers, the first of which is the core blockchain. Each layer under the first is a secondary or tertiary layer that complements and adds functions to the layer above it. The Lightning Network can also be used to manage off-chain transactions involving cryptocurrency exchanges.

Issues addressed by Lightning Network

The Lightning Network was proposed first by Joseph Poon and Thaddeus Dryja in 2016, and it has been in development since then. The Lightning Network was created to address Bitcoin’s slow transaction latency and throughput, or processing time, as well as its fees.

The Lightning Network seeks to address the following issues:

Sluggishness in confirming transactions: Because of so many people transacting through Bitcoin it has become expensive and time-consuming. Even Bitcoin Mining is becoming difficult over time. The increased transaction volume necessitated an improvement in transaction confirmation.

High energy prices: The amount of energy required to compute and process this information is very high which is making Bitcoin blockchain maintenance highly expensive.

Making certain that selected recipients receive the amount to which they are entitled Smart contracts and multi-signature is at the heart of the Lightning Network, ensuring that payments transmitted through the channels reach their intended destination.

The Lightning Network employs channels between participants to handle many transactions without requiring the slower main net to confirm single exchanges. Parties can transfer funds before th channel is closed. When the channel is closed, the transactions are transmitted to the main net for confirmation.

Problems with Lightning Network

When using the Lightning Network, one risk is closing the channel (logging out) and going offline. Let’s say two people are doing business, and one of them is malicious, a dishonest party may be able to take coins from the other participant by employing a technique known as “fraudulent channel close.”

Using the Lightning Network incurs transaction costs. They are a combination of routing charges for transferring payment information between Lightning nodes, channel opening and closing fees, and Bitcoin’s standard transaction fees. Furthermore, because watchtowers are third-party entities, many charge fees for this service.

Once two parties have settled the bill, they must record a closing transaction on the blockchain for the agreed-upon amount, which includes the fee charged for forwarding the transactions. This might be a flat price or a fee rate (a percentage of the transaction).

Payment channels, wallets, and application programming interfaces (APIs) can all be compromised, making the Lightning Network vulnerable to hacks and thefts.

Andrew Smith

Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages ​​and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.