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Lightning Network for Beginners

Lightning Network for Beginners
Written by Jon Gulson @jongulson
Posted 01 March 2018
This blog aims to assist general understanding for absolute beginners of the Lightning Network.

The Lightning Network forms second layer development of the bitcoin blockchain, which has become the world’s most powerful timestamping system – and the reason it attracts so much attention in respect its tremendous energy consumption.

It is important to remember the original vision for bitcoin as peer to peer electronic cash. Satoshi Nakamoto’s white paper is the best starting point for anyone involved or interested in bitcoin but increasing transaction fees together with slow confirmation times have led some to declare bitcoin has failed.

This means bitcoin regularly attracts misguided headlines and premature obituaries; but don’t be alarmed: rumors of its demise are greatly exaggerated. And at this point, we welcome the Lightning Network: a network which leverages the bitcoin blockchain to make decentralised payments a reality.

Good as Gold

Back in the old Wild West instead of carrying gold everywhere, people could make deposits at the bank and then carry sheets of paper in the form of gold certificates which represented their gold and functioned as money for everyday transactions.



So if we understand bitcoin as digital gold, then the Lightning Network performs this exact same function by allowing an open payment channel between connected parties who each deposit bitcoin. As the connected parties then begin to transact, the payment ledger between them is updated through smart contracts. The Lightning Network is capable of executing a huge number of smart contracts – irrevocable transactions without third parties running to computer protocol – each second.

This means the Lightning Network is a micro-ledger on top of the bitcoin blockchain, which doesn’t need to know each individual transaction contained in the Lightning Network payment channel – only the final balance of transactions (or smart contracts) as agreed by all parties when the channel closes. In this way, the bitcoin blockchain is alleviated of congestion which causes increased fees and slow confirmation times.

Small Casual Transactions

The Lightning Network can facilitate small transfers of value which would be prohibitive and impractical in the traditional financial world. This means as the interconnectedness of digital devices, machines and people begins to grow then the Lightning Network and base layer bitcoin technology can allow high frequency micro-transactions to become a reality on the internet. 

Development

The Lightning Network is still being tested at the time of writing, but is hoping to be ready for adoption in 2018. There are issues with the technology that should be mentioned including amounts which can’t be spent greater than deposited; the time it takes to open and close channels; and the use of hot wallets which raise security concerns.

However the potential of the Lightning Network is cause for much optimism amongst bitcoin and cryptocurrency advocates; and there is much more to the Lightning Network than presented in this blog; for example the technology is not just limited to bitcoin – it can be used across different blockchains.

What we have tried to do is help a foundation level understanding of what the Lightning Network does. Further learning can be found here and here.
Written by Jon Gulson @jongulson
Posted 01 March 2018
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