The Lightning Network, first conceived in 2015 on white paper, is an additional layer on the blockchain protocol which will help facilitate bitcoin transactions in a faster, cheaper and more efficient manner. Simply put, the Lightning Network is a payment protocol that sits on top of the blockchain protocol and will eventually settle on it. This will allow parties who wish to transact with each other to set up a payment channel and conduct an unlimited number of transactions.
For a transaction to be carried out, each party will be required to digitally sign an updated balance sheet to confirm the transaction. This reflects the amount of cryptocurrency owned by and due to each party and serves as a risk-free system. Furthermore, since these transactions are not made on the blockchain protocol itself, they are confidential and do not reflect on the public record.
Features of the Lightning Network
The Lightning Network has a number of features, the most important ones being:
High processing speed
Transactions take place in a matter of milliseconds on the Lightning Network. Furthermore, bitcoin wallets and payment channels can be created and closed instantly. This serves as a more efficient method of transacting as compared to the current system in existence, especially concerning micro-transactions.
Eliminates the need for third parties
Since payments are made on a decentralized network, there is no need for any intermediaries or clearinghouses. This ensures that there is no reliance on external parties to the transaction.
Reduced blockchain load
Since the Lightning Network is merely a layer on top of the blockchain protocol and not a part of it, most of its channels remain uncommitted. This allows users to complete transactions without placing an excessive load on the nodes of a blockchain protocol.
Parties can set up channels that ensure that their payments are signed by multiple keys, thereby granting them access to additional security. Since balance sheets need to be signed to complete a transaction, this serves to eliminate the possibility of fraud and disputes of any kind. Furthermore, if agreed upon and supported by heterogenous blockchain rules, transactions can be routed across more than one blockchain platform.
Allows atomic swaps
Cross-chain atomic swaps can be conducted instantly. This enables investors to freely trade cryptocurrencies and conduct transactions as they please without the need to convert them to bitcoin or use a centralized exchange.
Lightning technology today
Despite being conceived initially for bitcoin, lightning technology is currently being developed for a number of cryptocurrencies, including Litecoin, Zcash, Ethereum, and Ripple. Lightning Labs, a start-up that is among the major players in the lightning space, announced the launch of a beta version of its software in May 2018. This development is groundbreaking as it is widely regarded as the first thoroughly tested version of the Lightning Network to date. It is important however to note that the release was aimed at developers and advanced users, and can be used only for transactions with very limited sizes.
Companies such as DCG, ACINQ, Woocommerce, Nayuta, etc. are also among the major players in the space and aim to make payment channels based on this technology available as soon as possible.
While it is clear that the concept of the Lightning Network is in its infancy and faces issues at its current stage, it is evident that this revolutionary concept can make payments faster, secure and efficient. Furthermore, it can lead to the creation of entirely new industries. Hence, one can conclude that the Lightning Network can play a significant role in the future of blockchain technology as well as that of industries all over the world.
Do you think Lightning technology will change the way we conduct transactions? Can it really disrupt the entire digital payment space? Let us know your views and thoughts in the comments section below.