Bitcoin has been revolutionizing how people transact since its appearance in 2008. However, limitations concerning the volume of transactions the Bitcoin network can handle have caused cryptocurrency innovators to pursue solutions. These include second-layer solutions that promise to boost the viability of the network as Bitcoin scales to potentially serve billions of users.
What Is the Lightning Network in Bitcoin?
The Lightning Network is an off-chain solution that allows Bitcoin transactions to occur without the need to verify them on the blockchain. Proof-of-work functions in a way that can cause slow speeds and transaction costs that are unbearable for the amounts being transferred. By facilitating transactions through a network of users outside the blockchain, Bitcoin can retain its decentralized nature while scaling to cheaply serve millions of users around the world.
The Lightning Network came about when researchers in 2015 offered their view on a viable answer to the scalability issue. Gaining acceptance as a legitimate way of transacting value means that Bitcoin would have to at least match the volumes that credit card processors achieve. This benchmark is the 47,000 transactions per second that Visa can achieve at its peak.
In 2017, the SegWit breakthrough freed up space for more transactions on the blockchain and paved the way for microtransactions. SegWit, which stands for segregated witness, is a process that slims down transactions by removing signature data. Much like compressing files on a computer, SegWit saves space on each block so more information can be included.
How Does the Lightning Network Work?
The Lightning Network protocol allows the creation of a payment channel between two parties. This channel provides the ability to send unlimited transactions that take fractions of a second to complete. These transactions are also cheaper than ones that occur on the blockchain.
The party making the payment creates a channel by locking an amount of Bitcoin up in the network. Once this occurs, the intended recipient requests amounts of this locked Bitcoin. This payment channel can remain open so that further Bitcoin can be added to the transaction.
While the transactions between the two parties occur off-chain, the total amount will be recorded on the blockchain when the payment channel is closed. It’s important to realize that while the Lightning Network allows parties to transact away from the blockchain for speed, a consolidated transaction will eventually be recorded on the Bitcoin mainnet.
What You Need to Know About the Lightning Network in Bitcoin
Using the Lightning Network requires users to have a wallet that is compatible with the network. This adds an extra step for users since they have to transfer their Bitcoin from their regular wallet to the Bitcoin-compatible one. Transactions between wallets can incur a cost that can be off putting for some.
Furthermore, since the Lightning Network is still in its early stages of adoption, there are offline transaction scams users can fall prey to. Those interested in buying Bitcoin can use the reliable services of a provider like SoFi. As the company states:
SoFi uses a number of tools to secure crypto holdings against theft, including two-factor authentication, SSL encryption, partnering with trusted exchanges like Coinbase to complete transactions, and not sharing personal information about our members with crypto trading partners and custodians.
Buy and Transact Using Bitcoin
Bitcoin is growing and will play a major role in how people transact worldwide. Those that are inexperienced with crypto and are interested in buying Bitcoin should consult a reputable expert like SoFi .