Lightning Network Definition
The Lightning Network is a second-layer solution built on top of a blockchain, which aims to increase a network’s transaction speed and lower its costs, by creating off-chain channels between users to enable instant, high-volume transactions.
Lighting Network Key Points
- Lightning Network is built on top of a blockchain, making it a second-layer solution that aims to solve scalability issues.
- It allows for faster transactions between participating nodes, bypassing the blockchain.
- Globally it increases the transaction capacity of the blockchain by moving the bulk of transactions off-chain.
- It reduces transaction fees as it involves fewer miners.
What is the Lightning Network?
Lightning Network is essentially a decentralized system which makes use of smart contract functionality in the blockchain to enable instant payments across a network of participants. It significantly boosts the transaction speeds while reducing the need for miners in validating every transaction.
Where did the Lightning Network come from?
The Lightning Network was first proposed by Joseph Poon and Thaddeus Dryja in 2015 in order to resolve the scalability limitations presented by the Bitcoin blockchain. They realized that the hindrance to Bitcoin’s growth as a medium of exchange was its limited capacity to handle transactions.
Why was the Lightning Network created?
The Lightning Network was created to solve the scalability issue of the Bitcoin blockchain—namely, that it could only process a limited number of transactions per second, leading to slower transaction times and higher fees. With the Lightning Network, vast amounts of transactions can occur off-chain with the security of on-chain enforcement.
How does the Lightning Network work?
The Lightning Network works by creating a secure network of bidirectional payment channels. Parties can set up a private channel and send/receive an agreed amount of cryptocurrency between them, without broadcasting transactions to the entire network unless necessary. They can enter into as many transactions as they desire without involving the main blockchain, significantly increasing speed and reducing cost.
Who uses the Lightning Network?
Primarily, traders and investors who perform multiple transactions within short periods of time use the Lightning Network, as it allows for near-instantaneous transaction settlements. Additionally, it’s used by individuals and organizations looking to reduce the cost of transactions and maintain operational efficiency. Blockchain and cryptocurrency enthusiasts along with developers also use the Lightning Network, looking for solutions to Bitcoin’s scalability issues.
