Discussion

Will the Lightning Network save Bitcoin?

What is Lightning Network?
Bitcoin’s Lightning Network is one of the most awaited launches of 2018. Though the date of the final launch haven’t been announced yet, industry experts predict early 2018.
Similar to Ethereum’s Raiden Network Lightning Network is a decentralised network for instant, fast and scalable micro-payments. It eliminates the risk of handing over custody to a trustworthy third party.
Bitcoin’s decentralised design has a few drawbacks that are resolved by the Lightning Network. Confirmed Bitcoin blockchain transactions amount up to an hour before they become irreversible. Payments of funds with less value, also known as micro-payments, are inconsistently confirmed for which transaction fees on the network are rendered unviable.
How will it save Bitcoin?
Lightning Network solves these issues by implementing multi-party smart contracts which use Bitcoin’s advanced scripting system. This system allows users to program instructions for funds. These solutions make Lightning Network a leading technological development in multiparty financial computations using Bitcoin.
It facilitates:

  • Instant payments – aggregating transactions by setting up blocks ten minutes apart
  • Micro-payments – users can transfer as little as 0.00000001 Bitcoin without custodial risk
  • Scalability – allowing users to conduct transactions off the block chain by removing assignment of trust and ownership to a third party

How does it work?
The network works by allowing a two-party multisignature Bitcoin address. In other words, a multisignature channel on the blockchain. This channel is registered as an entry on the public ledger of Bitcoin. Agreeing upon a new balance, the parties determine the new balance for their channel and are then able to spend funds within the balance limit. For making payments, both parties sign a new exit transaction. This makes all old transactions invalid. The current balance is stored as the most recent balance signed by both parties. The network also allows either party to end the relationship unilaterally.
Multiple multi-signature channels enables all parties to make payments across the network. It is possible if the secure cryptographic hash is available to both parties involved without the need for unilateral custodial ownership of funds by any party.