Even though Bitcoin has been on a heavy run since its inception, it still needs help with scalability. The processing speed of the network ranges from 3-7 transactions, making it one of the slowest networks in space.
This speed makes it slower than traditional processing methods such as Visa, which makes it very unsuitable for everyday payments. Enter the Bitcoin Lightning Network, a second-layer solution that can change the current processing speeds. The solution offers instant transactions while maintaining the network’s security and lower fees.
The Bitcoin Lightning Network
The Lightning Network is a second-layer payment solution developed by Lightning Labs. They built the network to enhance the BTC network’s capabilities and deployed microchannels that users use to transact instantly.
The microchannels also ensure that the users get lower transaction fees than fees on the BTC network. The Lightning Network is built on top of the BTC blockchain and benefits directly from the security protocols on the blockchain.
As a result, the network will help reduce congestion on the blockchain, speeding up transaction times and reducing fees. The system achieves all this by using a sequence of payment channels, usually privately owned channels created by users on the blockchain.
In addition, the Lightning Network allows for creating multi-signature scripts and smart contracts that, like the ETH blockchain, ensure that transactions are secure and reliable. This aspect also ensures that users can transact in real time.
The network also helps reduce the energy associated with BTC’s Proof of Work system. The network allows for off-chain transactions that require less energy to transact.
How The BTC Lighting Network Works
The Lightning Network creates a network of payments between users in the chain, ensuring that transactions are safe without involving the energy-intensive BTC network. First, users on the network finance payment channels using BTC and start the process. After that, the users are free to transact with each other.
Nodes are intermediaries and computers that link to the Lightning Network to create a decentralized network. The nodes increase the BTC transaction speed. BTC takes around ten minutes to complete a transaction, but the Lightning Network has made it nearly instantaneous.
Pros of The Bitcoin Lightning Network
- Transactions are nearly instantaneous and work between peers on the network.
- The fees on the network are lower than the BTC network.
- The network also increases the scalability of the Bitcoin network, which, as mentioned earlier, is a big challenge.
Cons of The Bitcoin Lightning Network
- The biggest problem with the BTC Lightning Network is that it creates a network of payment channels centralized around BTC. This feature could lead to the centralization of the network and potential security risks.
- The network also requires that users be liquid before joining the network, shutting the doors to those without enough money to fund channels.
Bitcoin Lightning Network’s Stats
The Lightning Network has seen massive growth in the last three years, and one measure of growth has been the creation of nodes. As of March 16, 2023, there are over 78,000 active channels and 27,000 nodes.
These numbers indicate that the network is widening and becoming more decentralized as it spreads to new geographical regions. The network stats only support an uptick in usage as time goes and as new users enter the space, they can benefit from the user-friendly nature of the networks.
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