Two Minute Crypto – Key Concepts 14 - What is the Bitcoin Lightning Network?
Please click the link below to listen to the 71st episode of my weekly crypto podcast ‘Two Minute Crypto.’ These are intended to be short, single-topic ramblings on some aspect of the cryptosphere. Consider dropping a like and or a review on iTunes or Podbean if you enjoy the podcast. Comments and critiques welcome.
External Podcast Link
https://anchor.fm/the-two-minute-crypto-podcast
Transcript
Two Minute Crypto – Key Concepts 14 - What is the Bitcoin Lightning Network?
Welcome to Two Minute Crypto. Today’s episode seeks to explain the key features of the Bitcoin Lightning Network.
Before we begin a simple disclaimer: This series is aimed at providing crypto enthusiasts with a go-to source to outline ideas that are essential to engaging with the crypto landscape. Hopefully, each episode should be understandable by any reasonably open-minded individual with little or no prior knowledge of the subject matter. In paring things down to the bone many generalizations will be made. As a long-time member of the crypto community, you may find some of the descriptive language employed far too broad or too loosely applied. However, the goal of this series is to open the door to engagement where the real process of learning and understanding can begin.
As most of you will already be aware of – the Bitcoin network is comparatively slow. It takes approximately ten minutes to process or validate a block of transactions; fast by the standards of international wire services but very slow indeed when compared to many other blockchain networks or money services such as those offered by Visa. The issuance of blocks cannot simply be increased as this is, in fact, a core feature of the security model on which the Bitcoin network is built. Certain improvements have already been made most controversially the introduction of Segregated Witness which moved a significant portion of transaction identification to an encrypted sidechain. Nonetheless, BTC remains slow with roughly 7 transactions per second being its limit and those transactionS taking approximately 10 minutes to be confirmed.
The Lightning Network is an attempt to speed up the transaction throughput of BTC without undermining its core security. The Lightning Network sits on top of the Bitcoin chain and is often described as a Layer Two solution. Just as Visa is a few steps abstracted from the money supply of an economy so too is the Lightning Network one step removed from the base level of BTC. It is essentially a side-chain of Bitcoin, where two parties can elect to open a payment channel between themselves. This is practical if the two parties frequently transact – say between a stationary store and an office or a café and a regular customer. The opening of this channel is recorded on the Bitcoin blockchain. Any party may close the channel at any time. Funds need to be sent to Lighting enabled wallets to partake in the network but they may be returned to the mainchain at any-time. However, once opened and funded the parties can conduct as many transactions as they wish without that information being loaded onto the mainchain. The only limit is the actual balance of funds in each account. It is only once the channel or connection is closed that the final balance of the transactions will be recorded on the blockchain. The channel can have multiple participants and the processing of transactions is as it says on the tin - ‘lightning’ quick. In theory, the Lightning Network could scale to infinity.
Another core advantage is that fees are negligible – a fraction of a cent, unlike Bitcoin which can be notoriously expensive once congested. So fast, low-cost transactions become possible on the Lightning Network. Despite its elegant proposition it remains somewhat complex to setup and use and perhaps is not as yet entirely secure.
Essentially, this is an early stage layered technology with years of development ahead of it before it is ready for broader use in the market. Nonetheless, the Lightning Network does offer the promise of Bitcoin for coffee whether this is, in fact, a service in demand remains to be seen.
Thanks for listening.
