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Lightning Network: Fast and cheap bitcoin transactions


Sep 5, 2022

Lightning Network: Fast and cheap bitcoin transactions

Bitcoin throughput is about 7 transactions per second (TPS), and the time between new blocks is about 10 minutes. Such relatively low scalability indicators are the result of the option of solving the Bitcoin by the Bitcoin Bitcoin, which involves finding the balance between the three characteristics of the network: decentralization, safety and performance.

How Lightning Network works

An example of using Lightning Network

Here is a situation of using LN in practice. Anatoly’s favorite coffee shop announced that she began to take bitcoins as payment. But paying coffee in BTC every time it is too expensive due to high commissions. In addition, to confirm the transaction, a certain time is required.

LN comes to the rescue. Anatoly opens the payment channel with each other and coffee houses and puts 0.001 BTC on it, which is going to spend on the future to order coffee. When creating a channel on the balance of Anatoly, 0.001 BTC is displayed, 0 BTC on the balance sheet of coffee houses.

Suppose a cup of coffee costs 0.0003 btc. After the first order at the address of Anatoly in LN, 0.0007 BTC will remain already https://gagarin.news/news/robinhood-receives-a-hefty-fine-fails-to-meet-bsa-aml-standards/, on the balance of the coffee shop – 0.0003 BTC. Thus, Anatoly can order coffee until his balance is reset or he decides to close the channel. At each transaction, Anatoly and the coffee shop sign an updated contract reflecting how many coins in the channel belongs to each side. Data to the Bitcoin blockchain is not recorded – instead, each side stores its own copy of the contract.

Lightning Network is arranged on a network principle. This means that Anatoly may not have an open payment channel with coffee houses, but can be connected with it through other channels. That is, users can exchange in LN transactions with any other users who are connected to their payment channels through nodes.

The financial incentive in the opening of such connecting GCDs is to receive small commissions received every time the transaction occurs using one of the channels connected to it.

Thanks to the use of smart contracts, the architecture of the Lightning Network network does not require confidence in the parties. Funds always reach their recipients through intermediaries or return to the sender, if the path to the recipient for some reason is impossible.

Which bitcoin purses support Lightning Network

By the fall of 2022, there are already a number of bitcoin-wallets on Cryptine, which allow you to open channels and make transactions of the first cryptocurrency through LN.

For beginners, options such as Blue Wallet, Wallet of Satoshi or Nicehash are suitable for beginners. The latter is available for devices on Android or iOS. We recommend using MUUN, Breez, Phoenix or Zap more advanced users.

Lightning Network Development History

The concept of payment channels was proposed by Satoshi Nakamoto in 2009, providing the community with a sketch of code, which involved the creation of special channels between users. In 2013, Bitcoin developer Mike Hirn published a letter to Satoshi, where these mechanisms were described in detail.

In February 2015, Bitcoin developers Joseph Poon and Taddeus Dry published the first unfinished White Paper LN “The Bitcoin Lightning Network”. At the beginning of 2016, the main version of the white paper LN was released.

Due to the decentralized nature of the development of LN and many independent teams of developers, the community had to create general implementation standards. The basis of “standardization” was laid down at a summit in Milan in October 2016.

In August 2017, the Bitcoin network activated the SEGREGATED Witness software, the necessary update for the further implementation of Lightning Network.

The LN customer was released in March 2018 by Lightning Labs. At that time, more than 1000 knots were already operating on the network and 1863 channels were opened.

According to the data on September 29, 2022, according to the 1ml service, LN has 17,829 knots and 86,282 payment channels with a total network capacity of more than 4,900 BTC (about $ 94.6 million).

How Lightning Network works

Lightning Network ecosystem

In 2021, the analysts of the research company Arcane Research noted the exponential growth of the LN ecosystem due to the legalization of bitcoin in Salvador, where the CHIVO cryptochene compatible with this proctor of the Crypto -Killer is used at the state level. In February 2022, the country’s authorities restarted Chivo, improving the application user interface, correcting the bugs and adding the improved support of LN.

Translations in Lightning Network are supported by many centralized cryptocurrency exchanges, including Kraken, Bitfinex, OKX and Okcoin.

Development of the Payment Solutions sector based on LN is accompanied by interest from venture companies. Strike, Lightning Network Payment Operator, in September 2022, successfully attracted investments in the amount of $ 80 million. Startup develops the application with the possibility of buying bitcoin via LN, as well as transfers inside this network.

How Lightning Network works

Interest was noted from analytical companies. In February 2022, the Chainalysis platform added Lightning Network support to its solution to track transactions.

Gradually, LN integrates leading financial companies into their services. In the spring of 2022, the Robinhood online integration plans for integration, and Microstrategy included in plans to develop a wallet, server and authentication options using Lightning Network.

There are projects that allow tokenize assets and even release stablecoins with their subsequent use in applications based on LN. The Lightning Labs team announced the corresponding initiative, in September 2022, presenting the alpha version of the Taro protocol.

What is Lightning Network for which they criticize

Experts indicate a number of problems and possible vulnerabilities in the ln protocol. In 2020, one of them was discovered by the Yust Yuger bitcoin developer: some payment channels were not capable of holding more than 483 microsyles and subsequently blocked the BTC for up to two weeks. In addition, Lightning Network described opportunities for fraud with payment channels.

According to the technical expert Shinobi, the architecture of Lightning Network has serious shortcomings: the network is not able to develop due to the lack of significant economic incentives. According to him, the commission for the routing that collect LN-nodes is too small.

An analyst under the pseudonym Zem was made an important remark to LN, noting anonymity as one of the key problems for taking technology. The researcher also believes that the technology does not comply with financial laws, so it will be difficult to obtain the approval of such organizations on its basis as, for example, the Agency for Combating Financial Crimes in the USA (Fincen).

LN also found criticism in the community of Ethereum platform developers. The founder of the EthHub blockchain project Anthony Sassano compared LN with the facsimiles of the last century, calling the Rollups technology used as a solution for the scaling of the Ethereum network, the best option.

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