What is Bitcoin Lightning? How important is Lightning Network to the development of Bitcoin? Let’s find out in the article below.
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Bitcoin has grown incredibly since its creation. What started out as worthless grew to $69,000 a few years later and is now back around $21,000. Most Bitcoin experts predict that Bitcoin has greater potential to go further in the future. It may seem strange to make price predictions. And just a few years ago, predicting a price of over $100,000 was considered far-fetched. Now we see price predictions ranging from $300,000 to even over $1 million by the end of 2030. It's an exciting time to be in the Bitcoin market, but most of us have one thing in common: regret. Many people wish they had entered the market earlier and accumulated more Bitcoins.
Although BTC has been a hot topic for future price predictions. There has also been a lot of discussion recently about the future of the Bitcoin blockchain and its role in the world. Most people in the crypto space believe that Bitcoin has a legitimate chance of replacing gold as the primary store of value. After all, everything in the world is heading towards a digital future, and "gold substitutes" are a logical corollary. Many believe that Bitcoin has greater potential and could eventually replace the U.S. dollar as the world's reserve currency. The idea that this could happen is incredibly exciting and would make a lot of people very wealthy.
Although there are many Bitcoin fans who are confident about its future. There are also those who are dissatisfied. Their argument usually revolves around saying that almost no development is happening on-chain, and that layer 2, like the Lightning Network, hasn’t gained much traction so far.
While it’s true that these Layer 2s haven’t been adopted by mainstream cryptocurrencies yet; there are a lot of great underrated developments happening here. These developments have the potential to transform Bitcoin from just a store of value into something more. Many people don't even know the concept of lightning. So, in this article, we take a look at what lightning is and what it means for Bitcoin.
What is Bitcoin Lightning?
The Bitcoin Lightning Network is a layer 2 network built on top of Bitcoin. It allows almost instant and very cheap offline transactions. But for those new to #Bitcoin; the term Layer 2 and Offline sounds confusing. Let us explain them more intuitively as follows.
The main Bitcoin blockchain is like a highway that you need to get from point A to point B. But every time you want to use that highway, there's a lot of traffic costing you time and money. . So you need to turn to a side road to avoid all the heavy traffic. Once you avoid all the traffic, you can get back on the highway in time to reach your destination. This allows for almost instant transactions and is very cheap; typically only 1 Satoshi is required. Quite simply, that's what Lightning is doing.
Scalability and cost
One of the main complaints about Bitcoin is its slow transaction speeds and high costs. Payment services like Visa and PayPal are much faster. Visa can reach 24,000 TPS. If Bitcoin increasingly becomes a payment service for everyday transactions, Bitcoin’s transaction speeds will need to improve.
This is where Lightning comes into play. Lightning is capable of processing millions of transactions per second, many times that of Visa. This technology makes Bitcoin not only faster, but also cheaper. As we mentioned above, transactions currently only require 1 satoshi. Transactions using Visa, on the other hand, typically pay 2–3% or more. If you are a retail trader, there is no point in using a payment method that is cheaper and faster than Visa.
how it works
The Lightning Network consists of multiple channels that enable instant transactions between system participants using Bitcoin. The idea behind Lightning is that not every transaction needs to be registered on the blockchain. Instead, only channel creation and exit transactions are reported on-chain; all other transactions are recorded in the Lightning Network.
An example of this is if two users want to frequently transfer funds to each other, they can create a channel by adding funds to a multi-signature wallet. They would then use the money to make countless transactions. Recently, Kraken and OKCoin integrated Lightning into their exchanges. This will make Bitcoin transactions from exchanges virtually free. This is considered a major change for Bitcoin.
Off-chain transactions are transactions registered using a form of digital ledger protected by a clock. After each transaction, each party digitally signs and upgrades their version—most commonly by scanning a QR code. The actual redistribution of the original funds in the wallet only occurs when the channel is locked, subject to the final balance sheet on the blockchain.
BitcoinLightning Pros and Cons
1. Advantages
Instant payment. Fast and cheap payments. Finally, it is possible to buy coffee using Bitcoin.
While#Bitcointransactions can get very expensive during peak usage times. Using Lightning Network only costs about one satoshi.
Bitcoin Lightning can be used for very small payments, even micropayments. Minimum payout is 0.00000001 BTC or 1 Satoshi. This makes it perfect for everyday transactions.
2. Disadvantages
Since Lightning first launched in 2018, adoption of the technology has been slow and not growing as fast as many users expected.
Using Lightning requires you to open a channel, which requires BTC to open and close the channel.
Transactions only occur when both parties are online. This means you cannot trade at any time. Granted, Lightning needs a lot of work to improve the user experience.
The development of Bitcoin Lightning
For a long time, Lightning development was very quiet, leading to fears that the project would be forgotten and die. But in the past two years, considerable progress has been made and adoption has increased dramatically. We can see some major exchanges officially announcing that they will integrate Lightning Network. These exchanges are Kraken and OKCoin. We can definitely expect more exchanges soon.
In the current period, we can see exciting new startups using Lightning. Strike – A global money transfer app looks promising and may soon overtake competitors like Western Union or Wise. Another early project we need to consider is Sphinx Chat - a Lightning service that allows you to chat using the Lightning Network and also use it to pay and support your favorite content creators. As Bitcoin's price and popularity increase, more development will begin.
Additionally, updates to Taro Protocol are also worth noting. Taro allows the issuance and transfer of assets and tokens on the Lightning Network. This will allow the creation of stablecoins on top of Bitcoin and smart contracts. In the future on Bitcoin and Lightning Network, everything that is possible on other blockchains will eventually be possible. While many people are only interested in how the Bitcoin price performs on any given day. But in fact, new technologies are the key issues we need to pay attention to.
Conclusion
We are excited about the potential Lightning brings to Bitcoin. Growth at scale takes time, and hopefully that will happen in this case. Admittedly, there are still some challenges that need to be solved before Lightning can take Bitcoin to the next level. It can be said that Lightning Network can make Bitcoin not only a huge store of value, but also used for daily transactions.
