Explore the ‘why’ behind Lightning Network versus on-chain transactions as we unravel the key factors shaping the future of Bitcoin scalability.
Josep León
Product Manager
The Lightning Network is a layer 2 scaling solution for the Bitcoin blockchain that enables fast, cheap, and private transactions. It operates by creating a network of payment channels between users, allowing them to transact directly with each other off-chain, without the need to broadcast every transaction to the Bitcoin network.
Imagine that you are traveling with friends and instead of calculating every time you incur a group expense (i.g.: a restaurant bill, petrol, …) one of the members randomly pays it and writes it down on a piece of paper (could also be an expenses splitting app). There is a trust relationship between the friends as it happens on the Lightning Network between channels. Eventually, you are sure you will get paid at some point. At the end of the trip, you can add all the expenses and divide them by the number of people involved, getting the final balance everyone owns or needs to be returned.
The 5 “why” of the Lightning Network VS on-chain transactions
- Because of the cost: Lightning transactions are much cheaper than on-chain transactions since they do not require the same level of computational resources and network fees. This makes them ideal for micropayments and transactions with small amounts.
- Because of the speed: Lightning transactions are almost instant, with confirmation times of a few seconds or less, compared to the 10 minutes or more required for a Bitcoin on-chain transaction.
- Because of the scalability: By moving transactions off-chain, the Lightning Network can handle a much larger volume of transactions than the Bitcoin network can handle on-chain. This allows for greater network throughput and reduces congestion on the Bitcoin network.
- Because of privacy: Lightning transactions are private, meaning that they are not broadcast to the Bitcoin network and do not appear on the blockchain. This makes them more difficult to track and trace, enhancing the privacy of users.
- Because of the flexibility: Lightning channels can be opened and closed at any time, allowing users to manage their funds more easily and giving them greater control over their transactions. This also enables innovative use cases such as Lightning-powered micropayments and recurring payments.
Going back to the friends’ trip and the example of cost-sharing…
- The adoption of the mentioned approach would save time in the payment of each expenditure. You will avoid having to do calculations and collect money from each group member.
- You will avoid potential ATM withdrawal fees or transaction fees.
- Imagine a group of 5 friends paying a restaurant invoice split by credit card how long it will take…
- Privacy shouldn’t be needed between a group of friends…
- Everyone in the group can take the initiative to pay any expenses being sure to be fairly refunded at the end.
Overall, the Lightning Network provides a compelling solution for making fast, cheap, and private Bitcoin transactions. Its use cases are rapidly expanding, and it has the potential to become a key component of the Bitcoin ecosystem.
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