What is a lighting network?

Empowering Young Entrepreneurs in Ghana through Bitcoin

What is a lighting network?

What is a lighting network

Originally presented as an idea by Thadeuss Dry and Joseph Poon based on a network located on the edge of Bitcoin’s blockchain it is called a lighting network. The network consists of user-generated channels that constantly send back and forth payments in a confidential and secure way so you don’t even need to know who you’re doing the transaction with. The only thing that matters to the user is that the transaction is done quickly and securely. This network model bypasses the miners who typically perform the transaction. If there are no miners, ie intermediaries between the two users who perform the transaction, then the commission charged by the network is very negligible, almost so much that it can be called free.

How does the lighting network work?

The first thing needed to establish this network is to have two parties. One who wants to use a particular service and the other who charges for that service. Both parties must establish a “multisign wallet” (a separate wallet that requires two or more signatures to perform a transaction). The customer pays a certain amount of Bitcoin to that wallet, after which the wallet address is saved in the Bitcoin blockchain. After establishing this relationship, the two parties can perform an unlimited number of transactions with each other, as long as there is enough Bitcoin in the wallet. After completing the transaction, the parties close the transaction, and the balance is sent to the Bitcoin blockchain, which is then redirected to the specified locations, in wallets.

To make it easier to understand this principle of charging for a service, we will use an example. Let’s say person X wants to watch a particular movie and is willing to pay for every minute of that movie the amount of 1 Bitcoin (the numbers are figurative and have nothing to do with the actual price of this cryptocurrency). Customer, person X opens a lighting network with service provider company Y. Both parties enter the addresses of their wallets and the service can begin. Person X watched the movie for 90 minutes, which is 90 Bitcoins, and upon completion of the film, the lighting network redirects 90 Bitcoins from Person X to the wallet of Company Y. The service is performed and charged, and the commission is minimal because no transaction is required miners. Also, the anonymity of user X remained protected.

Use of lighting network technology

Although originally conceived for Bitcoin, lighting network technology is currently being developed for a number of other cryptocurrencies such as Zcash, Litecoin, Ether and Ripple. It should be noted that the technology has not yet fully taken root and is still in the development and implementation phase among users. Although the three StartUps (ACINQ, Blockstream and Lightning Labs) that are developing this network the most in December 2017 revealed research results proving that their software is capable of conducting transactions and is relatively ready for public use, no one has yet decided to launch wider network use. The reason for further testing of the system and caution with the introduction should be sought in the very sensitivity of financial affairs that requires strict testing because it is still about users’ money and protection of their data, and any mistake can end in a multimillion lawsuit against responsible corporations.

Leave a Reply

Your email address will not be published. Required fields are marked *