💬 A Simple Explanation Of The Lightning Network For Bitcoin, The Off-chain Solution To The Current Scalability Issues
So two days ago the first ever physical transaction on the Lightning Network took place. Pretty cool. It was practically instant and free of fees! That's something else than those $10-$20 fees per transaction we currently pay on the Bitcoin network :-)
The Lightning Network is an off-chain scaling solution for Bitcoin and other derived cryptocurrencies. If we want Bitcoin to become mainstream and make it possible to buy your daily cup of coffee with it, it needs to be very fast and very cheap to do so. Hopefully 2018 is the year in which we see serious progress on this!
It works with so-called off-chain payment channels and I like to think of those as opening a tab at a bar. After the last beer you pay the bartender and it's done. It avoids all the separate transactions for every round. Much easier and less effort.
Anyways, I found a video that explains the Lightning Network even simpler and in understandable terms. Enjoy!
Personally, I always like to watch multiple explanations to really understand it and avoid having information just from one source. I would recommend you therefore also to watch the video by Ivan on Tech about the Lightning Network (and skip the first 1.5 minutes, since those are not relevant ;-))
Cheers!
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Disclaimer: I am not a financial advisor, trader or developer. I am just a blockchain & cryptocurrencies enthusiast. Make sure you do your own research, draw your own conclusions and do not invest any money that you cannot afford to lose.
Getting more and more excited about LN! I think exchanges are going to form the first real big LN hubs, which will be interconnected with other exchanges.
Then as a user you simply open up a payment channel to your exchange of choice, and you'd be linked automatically to the entire lightning network. If I trade on Binance and you trade on Bittrex, and a payment channel exists between those two (likely? I hope) then you and I can cheaply transact as well
I think you are very right about that! It would be beneficial to everybody if everybody is connected with everybody so the network can just find the best shortcut. I haven't really thought about the reasons why someone would not want to be part of such a big network. Have you?
There is a big centralization concern if all transactions are routed through some few big hubs. At some point, those big hubs are likely to reject (censor) transactions that haven't submitted KYC identity documents. At that time it will be too late to try to route around those hubs, as 99% of the customers and businesses will only be reachable through those hubs.
That might indeed happen and basically then we are back to banks, aren't we? It will be interesting to see where the ideology and profitability scale tips. Maybe there will be even ICOs for hubs that promise to not demand KYC :-P
Not really.. not immediately anyway.
Truth be told I am going to be a slow adopter on this too. I have the majority of my funds in a legacy non-Segwit wallet for the same reason. Time will tell if these new scaling methods are really safe.
Most people in the know suggest to have one 'hot wallet' and one 'cold wallet' for main storage. The hot wallets are for spending. This is common practice nowadays anyway, so you might as well make the hot wallet a LN activated wallet, and only periodically refill it. I think I'm going to something along that route too.. It depends, I still have to see how the actual implementation will work out. Right now it's all theory still for me.
Good point. A bit similar to having a 'lopende rekening' and a 'spaarrekening' ;-)
Exactly!
I think the "slow adoption" combined with high fees for opening a channel will be the main issues why people will not immediately jump on Lightning - and if the Lightning network will remain small for a year or two, then it may already be too late.
The Bitcoin community have become thoroughly split, and some people will be against lightning just because they happen to be situated at the other side of the split. Personally I hope Lightning will work out - I just don't think it will be the silver bullet for the capacity problems Bitcoin is facing.
I'm among those that have both predicted the current Bitcoin capacity crisis for years already, and also one of those that thinks the crisis is completely meaningless and could have been easily avoided through modest increases in the block size.
Thanks for your comment on this @tobixen! You seem to have put some though in this :-)
That split is a battle that will remain I guess. It is a dangerous combination of ideology, greed and pride. I haven't been deeply involved in the discussions, but it's just crappy to see that they seem to be some people's full-time job to defend 'a side'. Not adding much value to the world.
BTW, how will the costs for opening a payment channel be determined? Who decides on those fees?
One has to get a bitcoin transaction mined to be able to open a channel.
The cost for a bitcoin transaction depends on how much people are willing to pay for it.
There is currently a fee market with a fixed supply (1 MB block chain space every ~10 minutes) and variable demand - an often-used analogy is a bus with a fixed number of seats and people bidding for getting a place on the bus.
There seems to be a propaganda war going on ... while I think this can perfectly be explained without resorting to conspiracy theories, I do have my own conspiracy theory explaining why we have such a split.
I totally can't wait for LN to hit I have a feeling once it does bitcoin is going to jump to be dominate yet again and visas etc will all open back up allowing it to fill that other gap most people think bitcoin should be filling a world wide digital currency for every day transactions
I hope you are right, sounds good ;-)
It will finally be able to unload the badly moving Bitcoin blockchin. Thanks for post!
Really cool post bro! Do you think lighting network will be adopted?
Thanks and I definitely hope so! They are doing quite a lot of work on it.
You're right Ace. I did say I've never heard of this guy, what does he know. However, you know your stuff. Your advice is spot on. If you do what you suggest, you will have more new friends and followers than you can handle. Give it a shot. You will be well on your way then. Well done.
it's so weird that bitcoin creator and developers didn't understand the scalability problem from the start and designed it with such heavy limitations
even at the time they could see the transactions carried by other payment networks and know that they had to match at least that capability AND THEN additionally be able to scale into the future
Not sure if they didn't see this coming. I guess they prioritised more on security/privacy than scalability in the beginning. Which is a good thing. You don't want to scale a system that is not secure :-)
enough to gain patience and analysis
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