Bitcoin Lightening Network: A Glimpse
By: Rishabh Jain
Bitcoin currently supports 7 transactions per second, has a 1 MB block size limit, and a blockchain that is 235.29 GB in size. If the block size limit were increased to allow Bitcoin to completely replace all other forms of global payment, the entire network would crash or, at worst, result in an extraordinary concentration of Bitcoin nodes among the wealthy. Additionally, most home computers couldn’t handle the storage and bandwidth needs for the bigger blocks, making Bitcoin useless to the general public. It was found that for the network to scale, the transactions had to take place outside of the Bitcoin blockchain. As a result, the Lightning Network was created in order to have a throughput of about infinity transactions per second with very cheap fees.
Working of Bitcoin Lightening Network
On top of the Bitcoin blockchain, the Lightning Network is a second layer payment network. It can be used in conjunction with other blockchain platforms and, in theory, provides an infinite number of channels for user-to-user bidirectional payments. When two parties utilize a payment channel to carry out
as many off-chain transactions as they like, only the initial and final transactions, which are subject to transaction fees, are recorded on the Bitcoin blockchain. The fee for several off-chain transactions is therefore equal to the fee for two Bitcoin transactions.
To transfer money between two entities, a payment channel must be established, which is expensive. Nevertheless, Lightning Network also enables payment transfers via a network middleman who has payment channels with the two parties. In order to conduct a money transfer from one entity to another, this capability is expanded by include numerous intermediates in the network, creating a web of payment channels. In exchange for providing the payment route, the middleman charges a very little fee. In order to provide a secure payment transaction, the payment channels use multi-signature technology and lock time; this eliminates the need to have faith in the other party and any intermediaries that may be present. To route payments within the network securely and privately, Lightning Network uses onion routing.
How Scalable is Bitcoin Lightening Network?
The protocol’s scalability is seen as being extremely high since it makes it possible for numerous transactions to take place off-chain, lessening the load on the blockchain. The number of transactions that can be executed is solely constrained by the capacity of the network’s participating nodes and the number of open channels.
If only two people care about an everyday recurring transaction, it’s not necessary for all other nodes in the bitcoin network to know about that transaction. By deferring telling the entire world about every transaction, doing net settlement of their relationship at a later date enables Bitcoin users to conduct many transactions without bloating up the blockchain.
Using micropayments, Bitcoin can scale to billions of transactions per day with the computational power available on a desktop computer today. These channels are not separate trusted networks on top of bitcoin and are real bitcoin transactions. They enable one to send large amounts of funds to another party in a decentralized manner.
Payments in micropayment channels are real bitcoin communicated and exchanged off-chain. This allows the financial relationships between two parties to be trustless deferred to a later date, without risk of counterparty default. Micropayments channels use real bitcoin transactions, only electing to defer the broadcast to the blockchain.
Companies which are using Bitcoin Lightening Network as a Layer-2 Protocol
A number of companies and projects have implemented the Lightning Network as a solution for Layer 2 scalability, including companies such as Blockstream, ACINQ, and Lightning Labs, and projects such as BTCPay Server, C-lightning, LQwD FinTech Corp and Eclair.
Recent Upgrades to Lightening Network
The Lightning Network, a layer 2 scaling platform for bitcoin, has a privacy problem. Users of payment networks may have privacy concerns when accepting payments, asking for refunds, and opening and closing payment channels (connections between Lightning nodes).
- As a result of these worries, protocol-based solutions have been developed, such as Basis of Lightning Technology 12 (BOLT 12), a proposed system that not only enhances privacy but also adds a number of other practical features. (Lightning Design Proposals, or BOLTs, are comparable to BIPs, or Bitcoin Improvement Proposals.)
- The use case of authenticating users on distant networks and charging for services is supported by the new standard known as LSAT. The advantages of both the Lightning Network for better payments and Macaroons for improved authentication are combined in this system.
- In order to issue assets on the Bitcoin blockchain that can be transferred through the Lightning Network for immediate, high-volume, low-fee transactions, a new protocol called Taro is powered by Taproot. At its core, Taro makes use of the speed, scalability, and cheap fees of Lightning as well as the security and dependability of the Bitcoin network.