The Bitcoin lightning network is also known as a second layer created to solve the issue of scalability in the blockchain network. Many traditional payment pirates can perform thousands of transactions per second, which means millions of transactions in a day. But there is an issue with the Bitcoin blockchain that can do only five to seven transactions per second, and that is why there is an issue with the Bitcoin network’s scalability. Therefore, the lightning network or the concept of a second layer came into existence in 2015 to solve this issue that you will understand in this five-minute reading. To start Bitcoin trading you need to create a free account on Bitcoin Boom.
What is Bitcoin?
Bitcoin is a coin in a digital form invented to remove the intermediaries between two parties. Many payment parties charge high fees for transferring funds from one account to another account, and bitcoin was invented to remove these parties from making direct transactions without paying the additional cost to any third party. It would help if you had a virtual bitcoin wallet to make the bitcoin usable; otherwise, you will never use bitcoin for doing transactions.
What is Blockchain?
If you want to understand the lightning network in bitcoin, then you must have basic information about the blockchain network. Bitcoin Blockchain is a platform for recording or broadcasting bitcoin sending and receiving so that everyone can see the latest and previous transactions. Furthermore, blockchain is a direct platform with no third-party involvement (peer-to-peer network), so bitcoin users can easily trade without paying any additional charges to the third person, such as banks, financial institutions or government agencies, etc.
What is mining, and how does it work?
Mining is the process of validating or checking a bitcoin transaction, whether the user sends it or not, by solving some mathematical algorithms. There are people (bitcoin miners) working behind the bitcoin network for the smooth functioning of the bitcoin payment system by using computational power and skills. When a bitcoin transaction occurs, it will go to the blockchain network, and then a miner can then validate it using his skills and send it to the block. Finally, when the league gets enough with the right amount of transactions (up to 1 MB), it will be published to the blockchain network.
What is the Bitcoin lightning network?
Bitcoin lightning network is a new term introduced in 2015 to solve scalability’s prominent issue. The Bitcoin lightning network is also known as the second layer of blockchain because the first layer has more involvement of miners, and it will take more time than third-party transactions. The lightning network participates in payment channels to do fast transactions at a meager cost without involving the miners. After closing the channel, an entire block of transactions is disclosed on the blockchain network to solve it.
Why a Bitcoin lightning network?
We use Google Pay, Phonepe, Paytm, PayPal, and other banking payment applications for daily transactions, but why? Because there are nominal fees and the speed of transactions is prompt since there is the involvement of a third party network. But in the case of bitcoin cryptocurrency, there is an issue of scalability because you cannot do small transactions with it, and you have to pay a higher amount as fees than actual buying. Therefore, many people prefer to buy with fiat currency rather than bitcoin. There is a limit for transactions per second (up to one megabyte), only five to seven transactions per second. A third-party payment system can do over 50,000 transactions per second which are very high and fast.
So developers introduced the lightning network in the bitcoin network to make small transactions at nominal fees with a high transactional speed which means above 20,000 transactions per second. So now it becomes easy for every bitcoin user to make minimal bitcoin trades quickly by paying the nominal cost.
Illustrations of the lightning network
Suppose you go to the coffee shop daily, and your payment method is Google pay. One day you asked the coffee shop owner about bitcoin payment, and he said, “yes, we accept payment in bitcoin cryptocurrency.” Then the next day, you go to the coffee shop and pay in bitcoin through your exchange wallet or bitcoin wallet. Now you are waiting for the transaction to complete because the shop owner will not let you go without validating the transactions. You were waiting for hours, and finally, after three hours, the shop owner received the bitcoin and let you go. The price of the coffee was $10, and when you transferred the bitcoin through your wallet, the cost of validating the bitcoin was worth $5. That means you wasted five dollars extra as well as your time. So the lightning network is a payment channel in the bitcoin wallet which means when you do a bitcoin transaction by scanning the QR code of the shop owner, he will promptly receive the bitcoin into his wallet. After a particular time, when you close the channel, the system will disclose all the transactions to the bitcoin blockchain after a specific time.