What's the (Bitcoin) Lightning Network?

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Several years ago, Bitcoin's limitations became apparent. Bitcoin was unable to process all transactions. This could just happen again in the next Bull run. Are there solutions to this?

Yes indeed, one of these solutions is the Lightning Network. With the Lightning Network, transactions can be sent in an instant, without crowding the blockchain. How exactly does this work? That's explained below.

Off-chain solution

The Lightning Network forms an off-chain solution, meaning that transactions do not take place directly on the blockchain. Instead, transactions are logged in a layer above the blockchain.

The current bitcoin blockchain can process a maximum of 7 to 10 transactions per second. By comparison, the Visa payment protocol can reportedly process 24,000 transactions per second.

In addition, adding new transactions to the blockchain requires significant energy and computing power.

How does the Lightning Network work?

The Lightning Network can be thought of as an additional payment network, on top of the Bitcoin network. So, transactions on the Lightning Network do not show up on the Bitcoin blockchain.

To use the Lightning Network, you send your bitcoins to the Lightning Network. You can do this by downloading a Lightning wallet (for example, blue wallet).

You first connect to a node on the Lightning Network, which results in the creation of a channel. This channel, also called a Lightning payment channel, allows you to send Bitcoin to any recipients within the Lightning Network. It is important to note that the transactions you make through this network are not recorded on the blockchain.

Sending transactions through the Lightning Network is different from a regular Bitcoin transaction. In Bitcoin, transactions are bundled and processed in blocks. In the Lightning Network, each transaction is processed separately. Your transaction eventually reaches the recipient of the payment through various nodes on the network. Simplified, that looks like this (imagine buying a coffee):

When you have paid, and no longer need the Lightning Network, you close the payment channel with your node and send the remaining Bitcoin back to your Bitcoin wallet.

Only this transaction will appear on the Bitcoin blockchain.

This solution has gone live for several years. But it is still in its infancy. It remains difficult for someone who does not deal with Bitcoin daily to create a lightning wallet and open a payment channel via a node.

Hopefully, this information helped you get started.