There is a tremendous amount of buzz surrounding the Lightning Network. Media outlets and industry websites are generating blog posts and web content on this recent addition to the Bitcoin environment. Its introduction to online transactions may have something to do with Bitcoin’s transaction fees rising in January and February and the issue of scalability.
Thaddeus Dryja and Joseph Poon proposed the idea in a 2016 white paper. The two engineers wanted a decentralised system that would allow users to make transactions and micro-transactions, offblockchain and with untrusted parties, using Bitcoin.
Although initially designed for Bitcoin, the new payment protocol is currently undergoing development for other cryptocurrencies like stellar, zcash, ether, litecoin, and ripple.
Other Cryptocurrencies Enter the Scene
The Lightning Network offers convenience because it automatically finds the quickest route for transactions. It not only addresses the issue of scalability for users, but it also makes the process more affordable. Moreover, with a broader selection of cryptocurrencies in the works, wider adoption could be possible.
Lightning Labs, ACINQ, and Blockstream are the three most current Lightning implementations that unveiled test results with live transactions last December 2017. The payment protocol is still in its early stages, and live testing is accessible. There are developers creating apps for this new system, and there is some discussion about it becoming enterprise-grade later this year.
Expectations are high for the Lightning Network to revolutionise the way people transact online.
The Lightning Network Process
So how does it work? You begin by opening a payment channel through a funding transaction; this will allow you to make bitcoin contributions to a special address. Once you both agree to a transaction, you can make payments instantly and without paying a fee. You can close the channel anytime, and since your dealings were off-chain, the blockchain will not have a record of your transaction history, but it will retain the resulting balance of the fund.
At the moment, there is no transaction limit or required time, so you can use Lightning Network to make small purchases and allow the channel to stay open for years.
The Future of E-Payments?
The advancement of the Lightning Network makes small payments possible. You can also settle payments in an instant. It only typically takes a fraction of a second for your money to cross the network to your destination and back. Already, the protocol addresses two issues here: economy and speed.
It may be too early to tell whether merchants can adopt this innovative new system across all transactions, however. Even Dryja is cautious about its widespread adoption on Bitcoin’s blockchain.
Any protocol in its embryonic stage will likely have hitches. For starters, nodes on Lightning Network require online access to facilitate transactions. Dryja notes that this opens up the risk of Fraudulent Channel Close in which one party closes the channel, stealing the funds.
Only time will tell how this new system will fare in the long run.
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