Bitcoin is secure and considered to be digital gold by many analysts. But then again it is in fact not the fastest cryptocurrency. The Lightning Network is trying to change that and we are going to show you how.
Opening Payment Channels
The basic idea of the Lightning Network is to overcome Bitcoins scalability problems by enabling payment channels between two nodes. These payment channels do not require immediate on-chain transactions, but are settled directly.
In order to settle the transaction between two parties it is signed in a funding transaction and, in another step, propagated on the network as a commitment transaction in order to become a classical on-chain transaction. The advantage is that the protocol will allow the transaction to be settled before it is written on the blockchain. In fact, two parties could transact Bitcoin with each other without having to settle it on the blockchain or telling anybody that they just did transact with each other.
This comes with instant settlements and makes it also easy to pay very small amounts without being overwhelmed by the fees. Another big development are so-called atomic swaps. Meaning that it is possible to swap any other crypto that is supporting the Lightning protocol for Bitcoin without involving a third party.
Great, how can I start?
The Lightning Network is already live and ready to use. However, it still has some major technical difficulties to overcome. While the idea of payment channels is relatively old and was first mentioned by Satoshi himself, the execution of its development took quite some time.
This was because Bitcoin wasn’t very popular for the first couple of years after its creation and the scalability issue was more of a theoretical problem back then. While it is still under development, there are critical bugs that still needs to be addressed. Such as the routing problem that makes it more difficult if not impossible to spend Bitcoin worth more than 50 US-Dollars on the Lightning Network.
With these issues at hand, the network is useable, but is still considered in an experimental status. Beginners are advised to check available documentation and manuals before they get involved using it. It is also prudent not to place large amounts of Bitcoin in the Lightning Network. Since one of the major use cases are micropayments this shouldn’t be much of a problem and one is encouraged to buy a coffee if Bitcoin is accepted and the Lightning Network is supported.