What Is The Lightning Network?

June 10, 2022

As cryptocurrencies continue to gain popularity, further efforts are being made to increase the security and anonymity around them. One solution has been the introduction of privacy coins, a sector created with privacy and anti-traceability in mind.

The Lightning Network is a highly scalable layer-2 payment protocol. It was developed to ease the stress on the Bitcoin blockchain by enabling faster transactions between participating nodes. The Lightning Network involves moving these transactions off the blockchain to help them complete quicker and with less pressure on the Bitcoin network. The goal of this network is to mitigate the high transaction fees and long waits for transactions to process that have become synonymous with Bitcoin.

Critics of the Bitcoin network often point out that the cryptocurrency’s blockchain is unlikely to replace fiat currency anytime soon because of its limited transaction speed. Major payment providers like Visa have the potential to handle tens of thousands of transactions every second. The Bitcoin network is limited to fewer than ten. The Lightning Network aims to create a second layer for Bitcoin by providing channels to facilitate transactions at a much greater speed.

Transactions can complete at a much greater rate as the involved parties can interact directly instead of waiting for approval from blockchain nodes. The Lightning Network serves as a great example of how Bitcoin can become more widely adopted without risking the security of its users or the decentralized nature of blockchain technology. There are not many ways users of Bitcoin can streamline their transactions that aren’t a risk to their assets. The Lightning Network is the exception to this rule.

The Lightning Network has garnered a lot of attention from the cryptocurrency sphere because of how it can resolve issues faced by Bitcoin that are halting its transition into mainstream adoption. Advocates of the Lightning Network believe it is the best option to help ease the strain on the Bitcoin network and make transactions flow freely without risking the security of its users. Bitcoin is under pressure to complete more transactions as it becomes increasingly popular.

Users of the Lightning Network cite the privacy and speed of the network as two of the major selling points. Details of payments aren’t recorded publicly on the blockchain. Instead they’re routed through many channels with the source or destination remaining unknown if they are non-adjacent. The average settlement time for transactions on the network is generally less than a minute and, in some instances, can occur in milliseconds.

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How Does The Lightning Network Work?

The Lightning Network is similar to the Bitcoin network as it consists of nodes running the relevant software. The difference between the two networks is that Lightning transactions aren’t publicly available or accessible by all network users. Lightning nodes interact privately and create connecting channels that lets them complete their payments. Lightning channels allow users to make payments with ease without sacrificing security.

Lightning channels open by depositing Bitcoin to a multi-signature address. This multi-signature address requires signatures from different keys. Conversely, traditional Bitcoin addresses only require one private key to claim ownership. Lightning channels need the keys of both parties to complete the transaction. The deposit to a multi-signature address gets recorded on the blockchain. When the blockchain confirms this deposit, the Lightning channel opens for the involved parties.

The open channel allows the parties to make transactions at a low cost and almost instantly. The parties then decide to close this channel which gets confirmed with another transaction recorded on the Bitcoin blockchain. This final on-chain transaction reflects the total change in their balances and acts as the layer of security that is the core ethos of adopters of blockchain technology. The Lightning Network has increased in popularity since its first use case in 2017. It looks set to continue growing as a top choice for people looking to complete Bitcoin transactions without the long waits and high gas fees.

How Do You Use The Lightning Network?

You must download the appropriate client to use the Lightning Network. It’s necessary to sync your Lightning app with the network before funding your Lightning wallet. You will need to know the other party’s channel key before you can both connect. When you have their key, you can create the functioning Lightning channel. You must also need their IP address to create a channel with them. Ensuring you have the correct IP address is vital for transaction security as it lets you know you are creating the channel with the right person. Users of the Lightning Network should still exercise due diligence and be sure to only create channels with trusted contacts.

Who Owns The Lightning Network?

Nobody will ever be able to own or fully control the Lightning Network. Like the Bitcoin network, it is a decentralized project that anybody can participate in by running a node. The code is open source and free for anybody to download and closely examine. This kind of decentralized operation is an integral part of the Bitcoin network and something that the Lightning Network closely mimics.

Who Created the Lightning Network?

The Lightning Network’s white paper was written by Joseph Poon and Thaddeus Dryja in early 2015. The technology became active in 2017 and has since grown in popularity. The open-source nature of the project means anybody can contribute with code. The Lightning Network got adopted by El Salvador in 2021, the same time the country accepted Bitcoin as an official currency. Adoptees of the Lightning Network will likely increase in number soon due to the network’s potential.

Does The Lightning Network Have a Native Token?

No, the Lightning Network exists solely to support the Bitcoin network and doesn’t require a native token to run. Transactions facilitated by the Lightning Network consist solely of BTC tokens. The Lightning Network is a layer-2 protocol, so it does not need its token. The number of transactions the Lightning Network can host is dependent on the speed and capacity of each node.

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