What is the Lightning Network?

When Bitcoin was first proposed by Satoshi Nakamoto in 2008, James A. Donald's first public comment on the system contained the following: "The way I understand your proposal does not seem to be of the required scale." Ten years later, scalability is still the biggest problem for Bitcoin and other sophisticated cryptocurrency systems.

What does scalability mean? Well, during its entire existence, Bitcoin can only process about 7 transactions per second. Although this was sufficient at the beginning, the system has been crowded for several years. Therefore, the transaction takes a long time to process, and the transaction fee is also high.

If Bitcoin is always a complete substitute for existing payment systems, it obviously needs to be able to compete with them. As of now, it is still far away. To understand the severity of the situation, just compare Bitcoin's 7 small transactions per second with Visa's average of 24,000 transactions and a peak capacity of approximately 50,000 transactions per second.

Over the years, the Bitcoin community has put forward various suggestions on how to improve Bitcoin's scalability, but has not yet reached a clear overall consensus. This is why we currently have several Bitcoin-like networks branching from the original network. However, a proposed solution that is currently being tested may work properly. It is called the Lightning Network.

What is the Lightning Network?
At a certain point in history, sending a telegram was the fastest and most effective way of long-distance communication. To do this, you must go to the local post office, fill out the form and pay the fee based on the letter contained therein. The message will then be sent to the nearest telegraph office for transmission to the far end. The postman then sends the telegram to the destination.

Basically, there are many people involved in sending a short text message, and you have to pay quite a lot of money. This is almost the current state of the Bitcoin network. In this analogy, the Lightning Network is basically like if there is someone you want to talk to with a speed dial: just press "1" to make your friend's phone ring.

In short, the idea behind the Bitcoin Lightning Network might sound like this: we really don't need every transaction to be recorded on the blockchain.

Instead, the Lightning Network adds another layer to Bitcoin's blockchain, enabling users to create payment channels between any two parties on this additional layer. These channels can exist as needed, and since they are established between two people, transactions are almost instant, and the fees will be extremely low or even non-existent.