Lightning Network has to do with Cryptocurrency, especially Bitcoins. Bitcoin is the first, most reliable and most popular cryptocurrency. As great as it is though, it has its shortcomings. Though one can transfer large sums using the peer-peer method, it takes about ten minutes at least for a transaction to be approved, this is a very disappointing delay in comparison to those operating with credit card companies, so that limitation is what brought about the invention of the Lightning Network.
The concept of Lightning Network was first proposed by Joseph Poon and Thaddeus Dryja in the year 2016, they published the Lightning white paper and it is still undergoing several developments as the whole concept and cryptocurrency system is.
In December 2017, some interoperable test transactions were carried out on Bitcoin core implementations.
The Lightning Network concept was endorsed by mobile payment entrepreneur Jack Dorsey in March 2018.
In simple terms, Lightning Network is a second layer technology for Bitcoins, it is the payment protocol that operates on top of a blockchain base like Bitcoins, this helps fast transactions between participating nodes and it is said to be the solution to Bitcoins scalability problems. It works based on a peer-peer medium for making small or micropayments of cryptocurrency through a network of bidirectional payment channel without a third party. It also simplifies atomic swaps.
Features of the Lightning Network
Instant Payments: this makes transactions faster because it doesn’t worry about the blockchain confirmation times. The payment speed is measured in milliseconds to seconds, the security of the stem is enforced by blockchain smart-contracts without creating an on-blockchain transaction for individual payments,
It Is Scalable: unlike going through the first tier Bitcoins payment transaction system, the Lightning Network makes millions to billions of transactions per second across the network possible. There is no need for custodians; it goes directly from person to person, it blows away legacy payment rails. This issue of scalability is solved by creating a second layer on bitcoin’s main blockchain, this consists of multiple payment channels between parties or bitcoin users, so, the parties can make or receive payments from each other.
Low Cost: It is done for much lesser fees and can be used for emergency cases such as instant payments because the Lightning Network allows for instant payment without the involvement of blockchain approval.
Cross Blockchains: This makes it possible to conduct a transaction without the third party custodians so long as the chains can support the same cryptographic hash
How It Works
The Lightning Network depends on the underlying technology of the blockchain; it uses real Bitcoin blockchain transactions by using its smart contract scripting language, thereby enabling the creation of a secure network of participants which helps transactions to be done in high speed and at a higher volume.
It is done when two participants create a ledger entry on a blockchain which requires them to sign off on any spending of funds, the first transaction is called The Funding Transaction and it is created when both parties fund a channel. So they both return the funds to their individual allocation and create many transactions between themselves by exchanging a single key that is used to validate spending transactions known as commitment funding but they do not publish it on the blockchain. They only publish the opening and the closing transaction.
The most recent transaction is valid which is enforced by blockchain-parsable smart contract scripting. The entry on the ledger can be closed out at any time by the parties involved without any trust or custodianship by broadcasting the most recent version to the blockchain.
Therefore, by creating a network of these two-party ledger entries, we see that there is a possibility of locating a path across the network which is similar to routing packets on the internet. There are nodes along these paths and they cannot be trusted because the payment is enforced using a script which enforces atomicity rather the entire transactions succeeds or fails.
Based on this, you can conduct transactions off-blockchain without any kind of limitations. So it is like making legal contracts without necessarily having to go to court for every contract to ensure its legality, the same way, you can transact an off-blockchain transaction with the same confidence of the on blockchain transaction.
In other words, the parties involved can conduct as many transactions as possible in a shorter period of time because they do not need any special approval from the blockchain. Individual payment channels between the various parties come together to form a network of lightning nodes that can route transactions among themselves. The interconnectivity between the payments channels is simply known as the Lightning Network.