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- 1 The lightning network is a second layer over the Bitcoin network to allow instant feeless payments.
- 2 The ecosystem allows various products including gaming, wallets and payments, node management, infrastructure, and rewards.
Lightning Network is an L2 solution on the blockchain for Bitcoin. Layer 2 solutions improve the scalability of blockchains. The network is designed to increase the speed and decrease the cost of Bitcoin transactions. It reduces traffic on the main blockchain to achieve the previously mentioned objectives.
The Lightning Network has evolved, starting in 2015, and the whitepaper was published in 2016. Rather than creating a new blockchain, Lightning Network is an L2 solution. It maintains the stability of the Bitcoin protocol and simultaneously provides the benefits that reworking brings.
Working of Lightning Network
It utilizes smart contracts to set up off-blockchain payment channels between different pairs of users. After setting up these payment channels, instant transfers can be made. Moreover, it does not require the creation of pairs among all the users.
Lightning addresses are similar to Bitcoin addresses, and the payment processes are similar for users. Users can close their payment channels and settle their final balances on the core blockchain at any time.
The opening and closing of payment channels are recorded on the core blockchain and hence, the entire blockchain network can move faster. Moreover, with the lightning network, privacy can be enhanced compared to the transactions made on the main blockchain, as it is an L1 blockchain.
Implementation of Lightning Network
In the testing and early stages of Lightning Network, it has faced many challenges, from usability to security. Furthermore, there were concerns about the ease of running a Lightning Network (LN) node.
It requires a robust network of Bitcoin nodes running the LN protocol to complete a successful run of an LN node. It could be difficult to run a LN node at times and it can lead to a case where payment incentive problems are faced for running smaller nodes.
Lightning Network mostly targets micro-transactions and the day-to-day experience with the network will be achieved through LN-enabled wallets. These wallets are not very user-friendly initially and it is advised not to deposit large amounts of funds.
Challenges Faced by Lightning Network
Overflow
An attacker can force victims and users to claim their funds from the blockchain at the same time, which will increase the traffic and fee requirements.
Robbery
The attacker uses the situation of congestion created by the overflow to steal funds. The funds that can be stolen include those of the users who are not able to claim them before the deadline.
Griefing Attacks
The funds are not lost in these attacks but the Lightning funds of the victims are frozen. Thus, it freezes all the payment channels involving the victim and cannot process any transaction.
Time-Dilation Attacks
An attacker can increase the time it takes for information to reach a victim and make him aware of new blocks by delaying block delivery.
Pinning Attacks
Attackers could trick a victim by closing their Lightning Network channel incorrectly and by stealing individual transactions.
Lightning Network Wallets
Wallet of Satoshi
It is a mobile custodial wallet where users are not allowed to control their bitcoins. It is available for iOS and Android. It is a centralized service that stores Bitcoin for users and takes care of opening payment channels for them. It provides a user-friendly interface.
Breez
It is an open-source, non-custodial mobile wallet that is available on iOS and Android. Breez takes care of opening up a Lightning Network channel for you. It requires three confirmations before the channel becomes functional. It is also able to encrypt users’ channel states over Google Drive. However, it increases the identity risk.
Bitcoin Lightning Wallet
It is a non-custodial wallet available only for Android devices. It gives complete control to users over their funds and they need to manage their funds themselves. It performs operations such as collecting fiat prices of coins, maintaining a list of public LN nodes that are used to open payment channels, and it also provides partial payment routes.
Conclusion: Upcoming Updates
LN is subject to numerous risks, but no one can exploit them. Developers are confident that finding these vulnerabilities will increase the strength of the network. It is necessary to achieve the desired growth. They are very optimistic about finding solutions to the challenges ahead. The protocol will continue to evolve in the future.
FAQs
What are the other Lightning network wallets?
The other wallets include Eclair Mobile, Zap, and Tippin.me.
What are the services offered by LN?
The services offered by Lightning Network include Bitrefill, which allows users to buy gift cards with BTC and other cryptos; Fold App, which allows users to shop at their favorite retailers; and Moon, which is a browser extension that offers an alternative payment method.
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.
