Lightning Network in a Nutshell
May 13, 2022
Lightning Network is a second-layer payment channel built on top of the Bitcoin network which records transactions on a separate side-chain that is still verifiable on the main Bitcoin network.
Bitcoin's network can only handle 7 transactions per second and requires 10 minutes to finalize, so it is simply insufficient as a global payments system, while Visa's payment network can handle approximately 24,000 transactions per second.
Bitcoin's current limitations: speed and cost. To solve this issue, the Lightning Network was proposed as a potential solution.
Lightning Network is a second-layer payment channel built on top of the Bitcoin network which records transactions on a separate side-chain that is still verifiable on the main Bitcoin network. It could allow thousands or even hundreds of thousands of transactions to take place instantly, making it great for micropayment (small transactions).
It achieved some important goals:
- Reduces congestion
- Low fees
- Fast transactions
- High throughput
The Lightning Network has its origins in musings by Satoshi Nakamoto, the pseudonymous creator of Bitcoin, but was formalized by researchers Joseph Poon and Thaddeus Dryja who published a white paper for the Lightning Network on January 14, 2016.
Lightning Labs, a blockchain engineering lab, helped to launch a beta version of the Lightning Network in March 2018—alongside a host of individuals and other companies including ACINQ and Blockstream. It was funded via a $2.5 million seed investment round, which included notable investor Twitter CEO Jack Dorsey (who has recently been getting more involved). The Lightning Network was the first attempt at a second-layer solution, but others followed.
Lightning Network is still in its early stage. Teams such as Lightning Dev Kit, Lightning Labs, Strike, and Block-stream ... are still hard at work developing Lightning Network further.
February 2022, Users of Block’s mobile payments platform Cash App can make instant and free bitcoin payments through the Lightning Network.
March 2022, Cryptocurrency exchange Kraken supports Bitcoin’s Lightning Network for inexpensive and instant customer deposits and withdrawals of BTC.
April 2022, Bitcoin payments service BitPay has announced immediate support for the Lightning Network through its payment processing platform, allowing merchants that leverage this platform to receive payments from Lightning wallets and enabling more cost-effective, cheaper bitcoin transactions through the Layer 2 protocol.
April 2022, David Marcus, Facebook Messenger's former lead and previous PayPal executive, announced the creation of Lightspark, a company focused on building, exploring, and creating on Bitcoin's Lightning Network.