Promising to be electrifying and covering for the rapidly expanding Bitcoin, Lightning Network is the nearest alternative for scaling the underlying. At the time of press and perhaps triggered by expanding Bitcoin prices and increasing number of BTC accepting merchants, the LN network capacity is up 54 percent processing a massive $4,259,141.07 or roughly 1057 BTCs. As the capacity grows, the number of channels follow suit and are up 18 percent to 7,381. But why is Lightning Network gaining so much traction roughly a year after launch?
Segwit Laid the Foundation
For once, we must understand that Bitcoin as a network is limited by block size. Back in Q3 and Q4 2017, several solutions were proposed and in a bid to deal with a bloated network, the community agreed to soft fork the network through a user activated upgrade in Segregated Witness (Segwit). It was Segwit that laid the foundation for LN as it ran a code separating transaction signature from data thereby freeing up space allowing for more transactions to fit in a block. Supporters estimated that Segwit would quadruple the nominal capacity of the network.
Apart from implementing this space freeing code, Segwit also dealt with the malleability bug that would have directly impeded the activation and launching of LN, a layer two and controversial layer two solution that would increase the network’s throughput. Since the business community disagreed to activate and double block size to 2MB contrary to NY and Hong Kong Agreements, the only solution that would scale the network was Lightning Network.
Here’s Why Lightning Network is Popular
Lightning Network introduces a smart contract that runs on top of the Bitcoin network allowing IOUs. Through this code, a peer can only one payment channel and connect with other peers he/she transacts with. Similarly, each peer will have one connection to the underlying blockchain network. Connected peers can transact as they want, execute private payments but once the channel is closed or funds in this LN supporting wallet are exhausted, everything is settled on the Bitcoin blockchain. Because of this arrangement, payments are processed faster, costs reduced and the throughput increased by several factors.
In fact, according to the official Lightning Network description, the creation of private channels scales the underlying by “millions to billions of transactions per second “ meaning it can outperform traditional financial intermediaries like Visa (which can process 2,000 transactions per second) and other centralized network by several magnitudes. Add this to the efficiency and lack of intermediation costs that parties paid, the network becomes this audit free, secure and cheap payment processing juggernaut.
There are weaknesses associated with the LN but the promise of making small transactions in a scalable manner is what is enticing. Already, Jack Dorsey is a supporter and through Tippin.me, users can “tip” users posting quality content or breaking news in Twitter. That’s not all. According to Mainnet lightning Network Stores, more merchants are embracing the future. Through Lightning Pizza, you can order Pizza from Dominos and pay with Bitcoin via the LN.