One of the biggest obstacles to Bitcoin being a payment tool for the masses is the transfer and approval process. It takes an average of 30 minutes for transferred Bitcoin to be available in the recipient’s wallet. This delay prevents Bitcoin from being accepted as a serious alternative to cash or credit card payments.
However, Bitcoin is the product of a technology that is still under development. Both the operational and technical infrastructure of the Bitcoin network continue to be developed thanks to the development team and volunteer software developers.
What is the purpose of the Lightning Network project?
The open-source Lightning Network project is one of the most important developments within the Bitcoin ecosystem. It aims to solve the speed problem in Bitcoin transactions, offering fast, reliable transactions with very low fees. This is done via a parallel network connected to the existing Bitcoin blockchain that doesn’t compromise the security and reliability of the Bitcoin blockchain. The Lightning Network makes it possible to make instant payments of any amount of Bitcoin at very little cost.
Bitcoin transfers are made on Lighting Network through ‘payment channels’. To work, a payment channel must exist between the sender and the recipient. This can be a direct channel (peer-to-peer) or a customer can join a business’ payment channel. Once the connection is made, the Bitcoin is deposited by the sender and sent instantly through the payment channel to the recipient. Payment channel providers determine their own transaction fee and you can open any number of payment channels on the Lightning Network. You can be included in as many payment channels as you want too.
Lightning Network payment channels also allow very low amounts of payments called micro payments to be made. Micro payments could be transactions as low as 0.00000100BTC (100 Satoshis) and have transaction fees of only a few Satoshis.
How can I use the Lightning Network?
In order to send or receive funds on the Lightning Network, you must first find a client that connects to it. Once done you can transfer the Bitcoin you wish to send to your Lightning Network wallet. Once it has arrived, you connect to the payment channel and make your transaction.
Transactions made on the Lightning Network are not transmitted to the Bitcoin blockchain until the payment channel is closed. In this way, since there is no need to pay transaction fees to miners, transactions can be made instantly with low transaction fees. When the payment channel is closed, all the transactions that took place on the payment channel are processed on the Bitcoin blockchain.
Payment channels opened on the Lightning Network can exist between two individuals and can also be used by businesses to receive continuous payments from users. This means that multiple users can be included in a channel, all of whom are able to send payments to the payment channel owner. Transactions made on the channel will not be transferred to the Bitcoin blockchain until it is closed, but you must transfer Bitcoin to your Lightning Network wallet to be able to make a payment on a Lightning Network channel.
Ownership transfer takes place on the Lightning Network, just like on the Bitcoin blockchain. When you send Bitcoin to a third party through a payment channel you are actually entrusting the ownership of the transferred amount to that payment channel. The payment channel cannot hold the Bitcoin you have entrusted to it without your consent. Because of this, payments between you and the payment channel owner are made without intermediaries. When the payment channel is closed the owner receives the Bitcoin held on it, with any unsent funds left in a channel member’s wallet returned to their bitcoin address.
When the payment channel is closed, the transactional breakdown is transferred to the Bitcoin blockchain, with the Bitcoin assets in users’ accounts transferring to the main Bitcoin blockchain.
Although transactions on the Lightning Network are carried out without being written to the Bitcoin blockchain, the Bitcoin traded on the network is. In order to make Lightning Network transactions, an amount of bitcoin must first be sent to the user’s Lightning Network wallet. This transaction is registered on the Bitcoin blockchain and the funds within it are unable to be spent elsewhere as long as they are connected to the payment channel.
The open-source Lightning Network project, which aims to eliminate the problem of the lengthy transfer times and high transaction fees on the Bitcoin network, has been described as the “future of cryptocurrency transfers”. It allows instant, scalable, and low-cost cryptocurrency transfer between blockchains. The Lightning Network is still under development, but you can access the technical documents at lightning.network if you want to find out more.