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- 1 Lightning Network is a Layer-2 protocol built on the base layer of Bitcoin.
- 2 It is used for instant and high-volume micropayment transactions.
Lightning Network makes transfers at lightning speed. It makes transactions faster than ever. Since it is a Layer-2 protocol it instantly gives results. It is built on the base layer of Bitcoin i.e. Layer-1 so it utilizes security and high protection standards.
It is an open-source project developed by Tadge Drujja in 2015. It is made to reduce high-fee transactions on Bitcoins. In 2016, a whitepaper was published and the project started gaining lots of attention. Lightning Labs is the company behind Lightning Network. The company has released the beta version of this network to test and highlight the value of Layer-2 solutions.
Bitcoin is a slow payment system and all its transactions are finalized in over an hour. The reason behind its slow speed is that Bitcoin assembles the transactions into blocks spaced about 10 minutes apart. The payments are considered safe after the transaction of six blocks is completed. This is very slow for micropayments.
Benefits of Lightning Network
Since Lightning Network is very fast, it is used for instant payments. It is used by retailers, and individuals, where third-party verification is optional. It allows the user to quickly send or receive Bitcoin without any fees or sometimes minimal fees while achieving a throughput of 1 Million transactions per second. It is the fastest payment system available.
Bitcoin is very expensive for everyday transactions. It means the transaction fees are on the higher side. The Lightning Network solves this problem as one of the first implementations of a multi-party smart contract using Bitcoin’s built-in scripting. They do not require block confirmation to finalize the transactions because the payments are atomic, instant, and not recorded on the blockchain.
Working of the Lightning Network
The Lightning Network uses a Bitcoin base and high protection standards to secure the network. To pay or receive payments on this network, Lightning Network-enabled Bitcoin wallets are needed where funds are placed. These wallets are mobile due to ease. Some examples may include Munn wallet, Satoshi wallet, and Phoenix.
Most wallets use multi-signature which provides a security layer for private keys. They are non-custodial which means the custody is in the hands of owners. By depositing Bitcoin in the wallet, users can start the payment transfers.
The only compulsion is that the other user must have Lightning Network to receive the payments. One can scan the QR codes and check the transaction details and begin with checkout.
Summary
Lightning Network is the fastest way to make transactions on Bitcoin. It is very cost-effective. Due to its affordability and fast speed, it is considered for micropayments.
With a background in journalism, Ritika Sharma has worked with many reputed media firms focusing on general news such as politics and crime. She joined The Coin Republic as a reporter for crypto, and found a great passion for cryptocurrency, Web3, NFTs and other digital assets. She spends a lot of time researching and delving deeper into these concepts around the clock, and is a strong advocate for women in STEM.
