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A Brief Explanation of Bitcoin’s Lightning Network

Lightning Network has set out to solve high transaction costs and other issues experienced by Bitcoin users. Transaction fees on the blockchain have shown a tendency to spike in times of high transaction volume, which often happens for instance when the bitcoin price is increasing. 

Bitcoin, which is slow by design, can conduct just seven transactions per second, while VISA processes between 35,000-40,000 transactions per second. The reason why Bitcoin can’t scale to 40,000 transactions per second is due to its small block size, in which transactions are verified. 

While on other blockchain platforms such as Ethereum, developers seek to build new capabilities into the base layer, developers on Bitcoin believe that by layering on top of Bitcoin, that protocol can secure all of the same features as other blockchains, such as smart contracts. On Bitcoin, there’s no need to place every single function in one service or file. 

Just like software engineers and developers value modularity and packages, in Bitcoin developers value layers. Bitcoin features its strong, steady and reliable base layer, which plods along validating transactions and blocks. Lightning Network lifts those transactions off the base layer, achieving instant and cheaper transactions without giving up on any of the security guarantees of the base layer, while allowing users to transact natively on Bitcoin. 

Therefore, the Lightning Network makes functions possible on Bitcoin that were not previously possible.  For instance, without the Lightning Network, you wouldn’t be able to have a place such as Satoshi’s Place,  a NSFW virtual graffiti board where you can for ten cents make a small drawing on the screen and pay per pixel to have it uploaded to the Bitcoin blockchain. Such small payments had been unfeasible on Bitcoin until the Lightning Network came along.   

Lightning Network could also prevent spam on websites, like Twitter. Bots on Twitter post and upvote fake news. If we charge someone a quarter of a cent per 100 tweets, it would never affect the end user, but it would affect the spam farms posting the junk links, etc.

Additionally, Lightning Network makes payment for API services possible. Many websites deploy CloudFlare today as a means of preventing denial of service attacks arising from repetitive requests on the server. Lightning Network could protect APIs by charging a tiny payment to access it. It would be such a small amount that the end user is unaffected, and wouldn’t notice. The spammers, who must post endless amounts of content to become, would be affected by such a micropayment. Lightning Network begins to open up possibilities never before pondered until this technology was available. 

As the Lightning Network processes more payments daily, it has not been without its challenges. For instance, while the network was in really early stages, a natural cap of 0.16 BTC limited the amount of money users could lock up in a channel. Users were seeing large transaction failures, because these channels were too small. Users couldn’t transact large amounts.  Over the last year or so, Lightning Labs introduced unbounded channel sizes, which is an opt in feature. Payment success rates increased. Not only did the channel size increase help.  Increased sophistication in the routing algorithms used in various implementations has also improved Lightning. 

It’s very difficult to provide Lightning’s transaction success rate, because all transactions on the Lightning Network are onion routed so as to maintain privacy. Therefore, you don’t know how many transactions are being processed on the Lightning Network. The Bitcoin Conference 2021 did run on Mt. Gox gaming competition, wherein 35,000 transactions were processed in a single day.

What’s Next For Lightning?

The Bitcoin network activated Taproot, a change to the signature scheme used by the base layer, which should activate in November. That will provide Lightning developers with more options, such as changing the way payments are made, in terms of the parameters used to create payments over payment channels. Taproot also allows for a more private channel on Lightning. 

Further, Lightning will also start to distribute log contracts, which allows one to commit to a contract and then use the input from an oracle. This could be applied to betting, a long-time blockchain use case. For instance, during the 2020 US election, two people bet on the outcome on blockchain-based prediction markets. An oracle signed a message regarding what the outcome of the US election would be, and the winning party could claim funds. Taproot and Lighting Network make such a bet possible on Bitcoin, and also make it possible that three of five chosen oracles must pick this result, which reduces the need for trust. 

The Lighting Labs team has been developing AMP, atomic multipath payments, which makes for a sleeker payment experience on the network, and also enables recurring subscriptions. The subscription feature, and static invoices, allows users to scan a single invoice. Therefore, you can push your subscription to creators, rather than them pull the payment from you as a merchant. For the user, this will ensure that all the sudden random payments appear on your credit card. You had forgotten about the recurring payment. Instead, with the Lightning model, users push payments per hour, per day, per month, etc. When you no longer want to use that service, you can terminate it. 

Lightning Network is open source software. Anyone can contribute to the project, whether that be flagging issues, answering other people’s questions on the repository, or even making pull requests, if you need a feature changed or field added. If you are looking to develop on Lightning, look into the combination of RASCO and Python, two secure languages for systems development, which seems to be deployed by many companies building on Lightning Network.