The Lightning Crypto channel or network is a two-party transaction method, in which the parties can make or receive payments from and between each other. Located within the Lightning Network, this layer two will increase the scalability of blockchain applications by managing transactions outside the mainnet blockchain (layer one) while still leveraging the strong decentralized security paradigm of the mainnet.
The Lightning Network itself is known to charge low fees for transacting and resolving off-chain thereby enabling new use cases, such as instant micropayments, that can solve this traditional puzzle: “Can you buy coffee with crypto?”.
Apart from that, it can also speed up processing times and reduce costs (energy costs) associated with the Bitcoin blockchain. So, how did history begin? Check out his review below.
History of Lightning Crypto
The Lightning Network was proposed in 2015 by two researchers, namely Thaddeus Dryja and Joseph Poon, in a paper entitled “The Bitcoin Lightning Network.” The post builds on an earlier discussion of a payment channel created by the anonymous creator of Bitcoin, Satoshi Nakamoto.
Nakamoto explained the payment channel to fellow developer Mike Hearn, who published the conversation in 2013. The abstract of the paper describes an off-chain protocol consisting of payment channels.
In that payment channel, two untrusted parties can transfer value without congesting the main network because the channel is outside the chain. Off-chain channels are designed to solve Bitcoin’s scalability problem.
Then, a year later, Dryja and Poon founded Lightning Labs (with several other contributors)—a company dedicated to developing the Lightning Network. The lab is working to make the protocol compatible with the Bitcoin core network.
Two years later, Lightning Labs officially launched a beta version of the Lightning Network implementation to the Bitcoin mainnet. Now, well-known personalities, such as Twitter founder Jack Dorsey, are also starting their involvement with the project.
Dorsey, for example, hired a group of developers to focus exclusively on developing the Lightning Network by paying them in Bitcoin. He also plans to implement Lightning Network to Twitter in the future.
Lightning Crypto Advantages and Disadvantages
Its main advantage is that transactions are faster and cheaper, allowing micropayments in a way that was never possible before.
Without the Lightning Network, users would have to pay high fees for simple transactions and then wait an hour or more for them to validate. The longer waiting time occurs for smaller transactions. The reason is that miners choose to validate larger transactions because they get a bigger reward for doing so.
Meanwhile, the downside is that one has to get a Lightning Network compatible wallet to really take advantage of it. However, while finding a wallet that works with the Lightning Network is easy, users will still need to fund it from a traditional Bitcoin wallet.
On top of that, the initial transaction from a traditional wallet to the Lightning Network also costs money so users lose some Bitcoin for interacting with the protocol. Once funds are placed in a Lightning Network wallet, users must lock their Bitcoins to create a payment channel.
One of the Lightning Network’s biggest problems is offline transaction fraud. If one of the participants in the payment channel chooses to close it while the other party is offline, the former can steal funds. When the last party finally came online it was too late to do anything. Fraudsters can only stay offline with no way to contact them.
The Lightning Network also does suffer from bugs, such as payment crashes, which are outgoing transactions that don’t see verification. The Bitcoin network will indeed return stuck payments, but it can take days to get them because valid transactions are prioritized over those stuck in terms of verification.
What’s the Future?
For the Lightning Network, they currently have one advantage, namely that adoption is on the rise. DappRadar notes that there are more than $110 million in Bitcoin locked in the Lightning Network. That number consists of people paying for goods and services, using apps, and so on.
On the other hand, if adoption continues to grow, the industry can expect more wallet developers to integrate Lightning Network support. Special users can also become nodes and speed up Lightning Netwo transaction times
In addition, it is also important to note that the development of Lightning has been extended to serve as a layer 2 solution in various projects. In this regard, cryptocurrency exchanges have started to support the protocol, bringing the Lightning Network to as many merchants as possible.
Exchanges that integrate lightning also allow traders to withdraw small amounts of Bitcoin cheaply and instantly (even when Bitcoin is solid). Without this network, users may be faced with high transaction fees and waiting times due to traditional Bitcoin technology. Furthermore, now third-party protection services consisting of various special nodes have also been introduced to Lightning Crypto. This is also considered to be able to make participants on this network able to avoid malicious activities, such as fraud.