The Lightning Network is a decentralised network that uses blockchain smart contract technology to facilitate fast payments across a network of members. The Lightning network will enable Bitcoin transactions to be completed quickly without worrying about the block confirmation times. It will allow millions of transactions to be completed in a fraction of a second and at a low cost, even between different blockchains, as long as both chains use the same cryptographic hash functions.
How the Lightning Network Works?
Naveen opens a channel with his favourite coffee shop and puts $10 bitcoin in it. Because he has a direct connection to the coffee shop, his transactions with them are instant. Pranav, who has another channel open with his favourite grocery store, also gets coffee from Naveen’s shop. The link between Naveen, the coffee shop, and Pranav ensures that Naveen may utilise funds from his coffee shop balance to purchase groceries from Pranav’s store. Similarly, Pranav may use his grocery store balance to do transactions with Naveen network businesses.
The Lightning network will allow two network participants to create a ledger entry, which will help to perform a number of transactions between themselves, and then record the state of the transactions on the blockchain. As of today, the Bitcoin network can handle up to seven transactions per second. During a normal festive season, the Visa payment network believes that they can process 45,000 transactions every second. This protocol tries to address the Bitcoin scalability problem.
The advantages and disadvantages of lightning networks.
Advantages of lightning network:
- Fast payments: Payments within a specific channel can be almost as quick as data transit between two nodes over the Internet.
- No trusted third party is required: The two channel participants pay each other directly via standard bitcoin transactions, and no third party has control to their funds.
- Across the blockchains: If another blockchain provides the same hash function for the hash lock and has the capacity to generate a time lock, the payment channel can be routed across several blockchains.
Disadvantages of lightning network:
Because of the security of lightning network payments, lightning network may not be suitable for big payments. Before receiving the money, the payee must sign the recovery transaction, and a hot wallet is needed, which means there is a danger that the private key will be exposed if a security incident occurs.
