Among so many concepts linked to Bitcoinone of the ones that has gained the most strength in recent years is that of Lightning Network (LN). It is a network of payment channels that allows faster transactions and with little or no commissions, and cryptocurrency specialists consider that it is crucial for BTC to become the “money of the future”.
Over the years, Bitcoin has received plenty of criticism. That it is a scam, that it has no real value, that it is a speculative instrument, that it is a lottery for the rich, that it consumes too much energy, and a long list of etceteras.
However, possibly none are as worrying to its developers and promoters as the one that ensures that does not serve as a means of payment for everyday transactions. And that’s what the Lightning Network sets out to fix.
But what is the Lightning Network, after all? How does it work and how is it different from a traditional Bitcoin transaction? In these lines we will try to answer these questions in a simple way.
Lightning Network, a still young development
The Lightning Network concept has little more than six years of existence and was formally introduced through a document signed by Joseph Poon and Thaddeus Dryja, which was published in January 2016. In said paper the authors argue that since not all transactions carry the same level of importance, they do not need to be fully recorded on the blockchain for confirmation.
For this reason, they proposed the creation of an off-blockchain micropayment network, with the aim of avoiding congestion on the main network while processing many more transactions cheaply and immediately. And all this without compromising the decentralization and security of Bitcoin.
Over time, as the price of BTC rose and its adoption increased worldwide, the need for an easy method to make instant payments with low fees became more and more evident. It is therefore not surprising that the Lightning Network has gained an increasingly important place on platforms that allow users to send “tips” or economic incentives to content creators, or to transfer satoshi —the smallest unit of a Bitcoin; that is, 0.00000001 BTC—to or from cryptocurrency exchanges, among other uses.
But the implementation and use of the Lightning Network is not completely without criticism. even among the bitcoiners. Some consider that by allowing operations that are not registered in the blockchain, it threatens the security component that the white paper of Satoshi Nakamoto. Others especially point to those known as lightning hubsmultiple LN channels and nodes opened by companies or individuals with a lot of Bitcoin and that, they say, go against the principle of decentralization.
However, in general terms, the use of the Lightning Network has been well received in the cryptocurrency ecosystem. A common thought is that, far from being perfect, the network represents a necessary bet to get Bitcoin to scale. This is how Poon and Dryja made it clear in their original document:
“While it is possible to scale to a small level, it is absolutely not possible to handle a large number of micropayments on the network or encompass all global transactions. For Bitcoin to be successful, it requires confidence that if it were to become extremely popular, its current advantages derived from decentralization will continue to exist. For people today to believe that Bitcoin will work tomorrow, Bitcoin needs to solve the problem of block size centralization effects; large blocks implicitly create trusted custodians and significantly higher fees.” .
transactions on-chain vs. transactions off chain
As we have already established in previous paragraphs, the Lightning Network allows transactions that are not registered in the Bitcoin blockchain, also known as off chain. But how does this work? What LN does is allow the opening of multisignature payment channels between two parties involved in a transaction. At each “extreme” of that channel there is a balance that fluctuates as BTC is sent and received. If the participants make 10 different movements among themselves, there is no individual record of each one of them in the block chain. They just sit two transactions: the opening of the channel with the addition of funds and its closing with the final state of the balance.
It is an extremely simplistic explanation, yes, but the operation of the Lightning Network does not keep much more secret. It is worth mentioning that the channels can be closed by any of the parties, without the need to have the endorsement of the other. On the other hand, transactions via LN are not limited to two parties that have an open payment channel with each other. If there is no such “link” between the participants, the network will take care of route payment through different channels until reaching its destination.
Thus, the sending of Bitcoin is done much faster and practically at “zero cost” compared to a traditional transaction, or on-chain. This is because the movements that are recorded in the block chain must receive confirmation from the miners, so not only must they pay a commission but also wait several minutes. Let’s not forget that each new block is added to the blockchain approximately every 10 minutes.
If the use of Bitcoin as a means of everyday payment – for purchases at the supermarket, having a coffee, etc. – were limited to conventional transactions, the problems for its implementation would be immediately apparent.
Suppose we go to a bakery and we want to pay with BTC, and we can only do it on-chain. Not only would it be absurdly impractical to wait long minutes until the amount is credited to the merchant, but the commission will most likely cost us the same or more than the value of the purchase. And while it is true that some wallets allow you to edit the value of that fee and choosing a cheaper option is not convenient either. After all, the less we pay, the longer it will take to confirm the transaction.
And to make the example even better understood, let’s make it a bit more visual. Here you can see a payment of 400 Argentine pesos (6,710 satoshi) in a transaction on-chainwith a commission of 371.18 Argentine pesos (6,227 satoshi). That is I paid almost 93% more so that it can be completed in an “optimal” time. The shipment it took 7 minutes to be credited to the recipient’s wallet.
from the same walletI paid a bill of 6,944 satoshi (414.75 Argentine pesos) via the Lightning Network. I had no commissions and it was credited immediately. The difference is visible, without any doubt.
Bitcoin needs the Lightning Network to scale
The examples make it clear what the benefits of the Lightning Network are, compared to conventional Bitcoin transactions. If the most important cryptocurrency in the world will really become the “money of the future”you will need initiatives of this type to demonstrate to ordinary people that its use is simple, practical and uncomplicated.
This does not necessarily mean that LN in its current state does not require optimizations. Surely it can improve both in terms of decentralization and security, as well as in any other point that experts and developers believe necessary. But it does make it clear that it is a proposal with a lot of potential and that, gradually, is paving the way for the adoption of this digital asset as a daily payment instrument.
