What is Lightning Network

The Lightning Network is a “layer-two” network that stays on top of the Bitcoin blockchain. It lets transactions to be processed off-chain fast and economically. Consequently of this it is enabling Bitcoin scalability. Also the number Bitcoin miners are a lot in the whole cryptocurrency market. But they have some problems, like transaction fees in the time of network density.

Bitcoin is the world’s biggest cryptocurrency. And it operates on Bitcoin Blockchain. With a current market cap of over USD 600 Billion. It acts as a form of decentralized digital ledger. It will form blocks by collecting transactions.

These transactions verified by “Bitcoin miners” who run a network of strong computers. That it will challenge to solve cryptographic puzzles and add the next block to the chain.

What does it do?

The popularity of Bitcoin is increasing in the result of that it cause some problems dealing with the huge number of transactions on Bitcoin Blockchain.

Because of to this design, a narrowed number of transactions have permission to enter in each Bitcoin block. And also transactions are not processed stay in a row to be put to the next block.

As traditional payments foundation can process thousands of transactions per second. Bitcoin can only process 2-7 transactions per second.

And also a new block will be added every ten minutes. This causes to virtual “traffic jams”. This happens at peak times with holds up to a day.

Bitcoin’s proof-of-work system is also energy intensive as many miners are competing with each other at the same time . This shows extensive costs, which the miners offset mostly through the block reward they get and also by collecting transaction fees.

In times of peak network density, fees have pierced to in overplus of $50. The Lightning Network addresses these problems.

How it works

The Lightning Network contains of channels that lets nearly instant transactions among participants in the system.

The idea that follows Lightning is that each transaction won’t need to be on record on the blockchain.

As an alternative, only the transaction that makes the channel and the exit transaction will be recorded on chain.  And all other transactions are recorded in the Lightning Network.

Let’s look at an example, when two users want to send funds to each other fast and so easy from time to time. They can structure a channel by making a multi-signature wallet and adding funds to it.

After that they can perform an unlimited amount of transactions supported by these funds. Necessarily, these are off-chain transactions documented using a kind of digital registry supported by a time clock.

Both sides digitally sign and update their copy after each transaction.This is usually done by scanning a QR code.

The actual distribution of the primary funds in the wallet only occurs on the blockchain itself. An that is when the channel is closed, based on the final balance sheet.

If there is any quarrel, both sides can use the most newly signed balance sheet to retrieve their funds. And also both users have the choice to unilaterally close the channel,and end their relationship.

When the payment channel is closed, the updated balance is verified on the blockchain, in the result of that users can use their remaining Bitcoin again on the standard network.

This channel among the two users also makes part of a web of correlated channels. Funds can be moved to anyone else with a Lightning wallet. This work will be done with the most economical space among the sender and recipient chose maker by algorithms.