what is lightning network

What is the Lightning Network? (The ultimate guide)⚡

16th October, 2022

The Lightning network knows growing success because it allows transactions to be carried out less expensively and more quickly than with the traditional method. The lightning Network is a layer 2 (a second layer) applied to the blockchain Bitcoin. Layer 2s help improve the scalability of the mainnet without hindering it while benefiting from the decentralized security power of the mainnet. This allows off-chain transactions and therefore transactions that do not burden the main Blockchain network.

On the second layer, we then find several payment channels between users/parties. So, a Lightning Network channel is a transaction method with 2 parties who can send or receive payments between them. 

(There is also a version video that explains what the lightning network is on YouTube).

What is scalability in blockchain?

Scalability (or evolvability) can be translated by the idea of ​​scaling. In other words, it defines the possibility of blockchain being used on a larger scale, with more people and therefore more transactions.

We realized the scalability problem of Bitcoin in 2017 when thousands of people entered the ecosystem. This is where the network was overwhelmed by the increase in the number of transactions. In April 2021, for example, the average cost of processing a transaction was $62. And, that was the price to pay to send a $10 or $10,000 transaction. 

what is lightning network
Source: https://ycharts.com/indicators/bitcoin_average_transaction_fee

At that time, Bitcoin's detractors concluded that the network was incapable of competing with traditional financial operators. It was not optimal or conceivable to use BTC for daily payments…

This is an essential challenge that blockchain technology must overcome. In fact, it is scalability that may hinder the mass adoption of cryptocurrencies. 

Thus, if a blockchain network is scaled, it will be able to manage millions (or even billions) of transactions per second. This volume of transactions per second is known by the acronym TPS. It is often indicative of the power of a network. 

—>You can read our article to find out about the bitcoin scalability issues.

size and speed of blockchain transactions
Source: https://howmuch.net/articles/crypto-transaction-speeds-compared. Note: Today, this chart is somewhat outdated. Blockchains can exceed Visa's TPS number, such as Algorand ou Solana (Sun) for example.

What does the Lightning Network bring to Bitcoin?

Thanks to the implementation of Lightning Network, fees are lower. Transactions are carried out off-chain, which allows, for example, instantaneous micro-payments. For a long time, detractors criticized bitcoin for the fact that you could not “pay for your coffee with BTC”.

(Indeed, for a long time, the fees were higher than the cost of coffee). It's now settled with the Lighting Network. We can pay for everything (not just coffee, eh) with faster, cheaper and less energy-intensive transactions. Thanks to Lightning network wallets, you can pay in btc, in a few seconds for a few satoshi.

Is the Lightning Network the miracle solution?

Even if the idea is that the Lightning network solves a lot of problems, the fact remains that its security contains some flaws. The network is likely to be affected by hacker attacks, for example. For example, a malicious actor could open multiple payment channels and close them at the same time. By doing this, they could clutter the network with unnecessary and cumbersome tasks.

During congestion, the attack could take place (and award funds) without the parties even being aware of the situation. 

The history of the creation of the Lightning Network

The Lightning Network was born from a simple observation: To match VISA (the international bank card operator), the Bitcoin network had to find a scalability solution, that is to say greater scaling.

For example, in 2013, VISA reached 47 TPS per second. However, Bitcoin does not have the structural capabilities to be able to do this (particularly due to the size of the blocks). Bitcoin allows processing 000-7 TPS and new blocks are created every 10 minutes on average. And, these can only contain a limited number of transactions.

So, the solution has been to create off-chain payment channels that can handle smaller transactions without congesting the network.

It was in 2015 that the proposal to create the Lightning Network was submitted by two cryptography researchers: Thaddeus Dryja and Joseph Poon. They published a white paper soberly titled “ The Bitcoin Lightning Network ». 

the bitcoin white paper
The document is available in PDF version, here.

The proposal builds on previous writings by Satoshi Nakamoto (the creator of Bitcoin) regarding payment channels. It had been discussed and debated on the subject with the developer Mike Hearn notably. The latter published the conversations in 2013 to advance research on Bitcoin.

This is how, in 2016, Dryja and Poon and other associates (including Blockstream) have created " Lightning Labs » in order to realize their research. The company raised more than $2,5 million and among the investors were Jack Dorsey. (He is the co-founder of Twitter and Square and CashApp. He has financed numerous projects related to Bitcoin and the Lightning Network. 

Implementing the Lightning Network

In 2017, a Bitcoin Improvement Proposal (BIP) which can be translated into a proposal to improve the network has been submitted. This resulted in the SegWit-based soft fork being completed, which freed up space in each block. Likewise, SegWit removed the flaw that Bitcoin contained known as “transaction malleability”. (This awful “bug” allowed users to simulate false transactions). 

Thus, thanks to SegWitt, the lightning network could be tested and validated. After a first beta version in 2018, the network became operational quickly during 2020. Developers were then able to create applications on this layer 2. This made other uses possible with the creation of applications such as as gaming platforms, simplified wallets that could operate using micro-transactions from the Litghtning network. 

The Lightning Network: How does it work?

The lightning network allows the creation of a peer-to-peer payment channel between two parties. You can imagine customer 1 (Alice) and salesperson B (Bob). It is the notion of a payment channel that constitutes the entire foundation of the Lightning Network.

Once the channel is established, the two parties can send each other an unlimited number of transactions, almost instantaneously and at low cost.

To create this payment channel, the buyer must then “lock” an amount of bitcoin on the network. This is how the recipient can invoice the amounts of their choice. 

Therefore, these different operations are not processed directly on the Bitcoin blockchain.

Understanding Nodes and Channels of payment

The Lightning Network nodes will then track transactions by combining payment channels between the parties. In this sense, the protocol is a set of interconnections of numerous payment channels.

When both parties decide to complete the transaction, they can close the channel. This information is then grouped into a single transaction which will be sent to the Bitcoin main network to be recorded.

This then allows dozens of small transactions to be consolidated into one. This then requires less time and less energy for the nodes to validate.

Without this, small transactions prevent larger ones and simply clog up the network. 

For a simple explanation, understand that each Lighting node is responsible for interacting with other nodes to facilitate transactions.

Channels are highways that allow money to be moved between the different nodes of the network. 

The more nodes and channels there are, the more secure the network is and can handle a higher volume of transactions. 

What are the advantages of Lighting Network ⚡?

The advantages are, as we have already mentioned, cheaper and faster transactions. The possibility then of creating micro-payments instantly with fees as low as a single satoshi (one hundred millionth of a Bitcoin).

lightning network

Remember that before the Lightning network, users had to pay very high fees for the slightest transaction and wait up to an hour before it was validated he chain.

The other advantage is that the lightning network takes advantage and benefits from the security of the Bitcoin network. 

Likewise, paying with LN allows you to enjoy private transactions. In fact, from the outside, observers can only see the full pack of transactions but not the internal transactions that took place. 

👋 Then, transactions are generally carried out using a QR Code. This is much simpler than using complex public keys. 

What are the disadvantages? 

One of the biggest disadvantages is that you need to have a wallet compatible with the Lightning Network to be able to take advantage of it. It is a separate network from the main Bitcoin network, so it is normal that a different wallet is required. 

That said, there are dozens of wallets that now work with LN. However, to use it for the first time requires an initial transaction from the traditional wallet to the Lightning wallet. This first transaction costs fees. Likewise; it requires users to lock up bitcoin to create a payment channel. 

The biggest drawback, however, remains the possible scams. A participant can close a channel while the other party is offline, for example. He can then steal the funds. It may also happen that there are blocked transactions. It may take days for them to be verified and corrected by the network. 

Finally, among the disadvantages, we can mention the fact that state regulators may be wary of Network Lignting due to its anonymity. 

How big is the network? 

In 2018, the network experienced its first hacker attack which destroyed around 200 nodes. This represented 20% of the network at the time.

Since then, corrections have been made and the network has continued to grow. Today, there are over 17,800 nodes and over 86 operational channels. The total capacity of the LN network. (as of October 000) is 2022 BTC. 

Finally, among the disadvantages, we can mention the fact that state regulators may be wary of network lighting of its nature. anonymity

–>Read the article: Know how to buy bitcoin while remaining anonymous

How to create a full node on LN?

If you want to take full advantage of the network, you can run a full node. 

By running a node, you support the Bitcoin network and the Lightning Network by verifying and validating that transactions are legitimate. You can also carry out transactions with your own node. So you are basically your own bank. No more middlemen. 

To run a node, it is possible to do it with small computers like Raspberry Pi For example. For the more ambitious, it is also possible to configure a complete Lightning node. So, you still need a certain IT base for a business with this type of installation. 

👋 This is why there are many providers of pre-configured devices for bitcoin nodes. You can read our article here:

How to pay with the Lightning Network?

Basically, you can make payments to anyone else who has a Lighting wallet. So be careful to check the recipient address when sending BTC!

If you want to make payments via LN, all you need to do is download a compatible app. Please note that some are custodial (you do not have your private keys) and others are not (you then have your own keys).

—> You can read our article on “Best Lightning Network Wallets".

Here are our suggestions: Wallet of Satoshi (fully custodial) and Blue Wallet which is not custodial.

Wallet of Satoshi

Wallet Wallet of Satoshi is renowned for its simplicity through which you can start transacting with other users very easily. However, it is a “custodial” wallet, which means that you do not have your own private keys. It is a recommended application in case you are a beginner and do not have the required knowledge to secure your seed phrase.

wallet satoshi

Blue Wallet 

This wallet works on LN which is custodial, which means that you do not hold your private keys unlike an application like BlueWallet For example. However, it is still a good app for beginners.

We could also cite Bottle of Pay ou Bitnob.

What can we do with the lightning Network?

Some useful sites: 

To find out where you can pay nearby, you have the “Accept lightning” site or see the “Ligning network stores”. 

  • 1ML: This is the reference site to be kept informed of all LN data. We can also see a visualization of the Lightning Network, with all the nodes and how they are connected to each other. You will be able to know live the number of nodes and them. network power variations.
  • You will also be able to see which LN sites are most used.

For example, at the time of writing this article, the most used sites are:

  • Bitrefill : a site to buy gift cards (Amazon, Airbnb, Zalando etc.) with BTC and other cryptocurrencies. (You can read our Bitrefill reviews)
  • tippin.me : A service that allows you to tip your favorite Twitter handlers. You can install Tippin on Twitter and be able to receive tips from your followers?. Under your tweet, there will be a little lightning and just click on it to send you some BTC.

This is what we did on Twitter to test the app 😉 Don’t hesitate to download it yourself. 

  • Opennode : A payment operator that allows you to implement Lightning payment for merchants who wish it.
  • Le wallet Phoenix and its new version which makes it a premium lighting portfolio with very affordable fees.
  • Wallet of satoshi : A Lightning Network compatible wallet. This is the one we personally use. We also use other apps bluewallet (non-custodial) or apps like Bitnob or Bottle Pay for example.

Other use cases of the lightning network

We discovered a podcast platform called Fountain. The platform allows content creators to earn BTC but also for those who listen to them. The business model is very interesting for this podcast platform from Web3.

There are also many associations like “Built with Bitcoin” which accepts BTC donations.

What is the future of the Lightnting Network?

You should know that the LN network is still under development. For example, in August 2020, the Lightning Network was updated to increase the amount of BTC that could be held in a payment channel. Thus, it is then possible for the nodes to process larger operations and volumes.

Likewise, there is more and more use of the Lightning network. Moreover, more and more businesses are opting for this option. The network offers strong efficiency and utility in countries with low financial inclusion like El Salvador. Thus, the village ofThe Zonte for example is a village where the population uses the Lightning Network a lot.

The number of platforms that accept Lightning transactions are also increasing. Exchanges like Bitfinex, trading sites bitcoin casinos, services of gift cards like Bitrefill allow payment in LN.

Final reflections

The guide ends here although there is still a lot to say. The Lightning network is increasingly used. This is a great thing for everyone and for Bitcoin itself. There are more and more transactions carried out on the network and more and more participants. Likewise, more and more people are downloading and using Lightning network wallets to make payments in btc.

By being able to be a currency of exchange in everyday life, we are ever more convinced that Bitcoin is a sound money (stable currency) that we are waiting for.

The more knowledge about this network becomes known, the more its use will be important.

Watch the video on lighting network on Youtube :

Video lightning network, the layer 2 solution on Bitcoin.

See also:

Note: No financial advice is given in this or any other article on zonebitcoin. This is information of which you are the sole judge and master. Be responsible with your investments and only invest as much as you are willing to lose.

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ZoneBitcoin Editorial

Passionate about Bitcoin, our editors try to democratize their knowledge through varied articles touching on different subjects.

2 Comments

  1. I know you want to do traffic etc but please correct your bullshit, in your articles if we read it we understand that Blue and Satoshi Wallet are the same non custodial, just reread there are other stupidities and mistakes

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