Lightning Network: What Is It & What Are Its Advantages

Lightning Network is expected to handle millions of Bitcoin transactions per second

by Ivan Penkov
22 May • 3 min
In Tech

Transactions in Bitcoin usually take one hour to verify and confirm so that double spend attacks could be avoided. Bitcoin transactions are still faster than credit card settlements, which can take two to three days to confirm.

Even though the speed of a Bitcoin transaction is relatively high, it could be made near instantaneous with the Lightning Network (LN). Lightning creates a network of micropayment channels, which allows for a low fee, near-instant secure transactions. These channels operate on Bitcoin by using op-codes to enable riskless transfers.

Lightning is a second layer technology that works on top of the Bitcoin protocol. Lightning allows for off-chain transactions in a decentralized manner, which releases the blockchain from doing everything. Also, it allows for more data to be processed than with doing things on-chain. The blockchain is used to anchor the off-chain transactions when payment channels are closed.




Lightning transactions are essentially Bitcoin transactions. Users pay money to the miners when they need to establish or close a channel. Once a channel is opened, users can do as many off-chain transactions as their balance allows them to do. If a user tries to cheat and steal the money in a channel, there is a time period in which the other users can prevent this and get their money back thanks to a contract called Hashed Timelocked Contract (HTLC). Miners are also incentivized to act fairly because if they decide to censor and not accept transactions below a certain amount, there will always be someone who would accept the transaction.

It is yet to be seen how successful the LN will be. In general, it is expected to accommodate millions of transactions per second.


Scaling the network

The motivation behind the creation of the Lightning Network comes as a solution to fix a years’ long scaling problem of growing the Bitcoin network. The improvements will be completely transformational for Bitcoin. The technologies that were involved in the scaling debate were: SegWit (Segregated Witness), Core, Classic, Bitcoin XT and Unlimited. Before SegWit, Bitcoin had a blocksize capped at 1MB, processing three to seven transactions per second. To increase this throughput, Bitcoin had to increase the blocksize. How this was accomplished was at the center of the scaling debate.

SegWit was a software upgrade that had been in the works since 2016. In August 2017, SegWit was activated as a soft fork on the network and it was a vital technology for the development of the Lightning Network. Without SegWit, Lightning would be very hard to implement, because SegWit is also a malleability fix for Bitcoin.