If we want to explain Lightning’s aim in a few words, we can say: “Bitcoin’s fast and fee-free transactions”. If you are a Bitcoin user or investor, you have definitely faced slow and expensive transactions. Lightning is here to solve this problem.

Maybe you assume Lightning is only for the Bitcoin maximalists who are determined to use this cryptocurrency in daily transactions, not Bitcoin investors. This assumption is wrong. It was in June 2021 that El Salvador announced Bitcoin as its official money. Twitter has decided to use Bitcoin as a means of rewarding its content creators. Elon Musk, Tesla’s CEO, has claimed that it will accept Bitcoin as a means of payment after this cryptocurrency solves its environmental issues. All these news and events prove that we will be forced to use solutions like Lightning in the near future.

In this article, we are going to explain what Lightning is, what uses and purposes it has, and how it executes its functions. Stay with us.

What is Lightning?

Bitcoin has gotten trapped in its own popularity. This blockchain is gaining more users every day, but it has been designed in a way that it can’t handle more than a set number of transactions. Bitcoin can only process 7 transactions per second, and this is literally low.

This low scalability leads to two problems: slow transactions and high fees. Now for solving this problem, we have to move to other scalable blockchains, or we can think of solutions for increasing Bitcoin’s scalability. Lightning is an example of the second option.

Lightning is a second-layer off-chain solution that lets users transfer Bitcoin immediately and with near-zero fees. The main theory behind Lightning is that “micropayments” (small transactions) don’t need to be recorded on the blockchain. This solution reduces the load of the transactions and frees up the space for more transactions. If you want to know how Lightning brings this theory into practice, stay with us in the next part.

How does Lightning work?

Lightning uses two-way payment channels. Users who frequently make transactions can open a channel and transfer some Bitcoin to it. After that, the transactions they make are not recorded on the blockchain. They are just handled in this channel, like a simple settlement network. Whenever the users decide to close the channel, the final amount is transferred to the blockchain. In other words, using Lightning, only two transactions get recorded on the blockchain: when you want to open the channel (the funding transaction) and when you want to close it (the closing transaction). The other transactions are all handled off-chain.

As we previously mentioned, this network is appropriate for users who want to make frequent transactions. The best examples can be two friends who go out a lot, two colleagues who need a payment channel, and a customer and a seller.

By the way, imagine that you must have a channel with someone who you don’t trust. Here, the issue of security arises. We have to say that Lightning has used some unique innovations to guarantee its security.

Imagine that you want to buy a cup of coffee that is worth 12,000 Satoshi, and your current balance is 80,000 Satoshi. In this situation, the recipient must create an invoice that shows your balance as 68,000 Satoshi and his/her own balance as 12,000 Satoshi. This invoice is a long string of letters and numbers provided as a QR code. You as the sender must scan this QR code and confirm it. Without your confirmation, nothing will be recorded. In other words, Lightning channels are in fact multi-sig wallets that require the private key of both parties for a transaction to be finalized.

How can we use Lightning? Lightning wallets

The most important point for using Lightning is that all parties must use a Lightning wallet. If your party uses a wallet that doesn’t support Lightning, you have no way to create a Lightning channel with him/her.

There are two ways for connecting to a Lightning network and using it:

• Running a Lightning node;
• Installing a Lightning wallet.

Running a Lightning node is a difficult process even for the professional users of Bitcoin. But the good news is that you don’t have to run a Lightning node for using it. You can easily install a wallet that supports Lightning and use this network. 5 of the best Lightning wallets include:

• Phoenix
• Blue Wallet
• Wallet of Satoshi
• Muun
• Breez

Among the mentioned wallets, Blue Wallet and Muun support both the Lightning network and the main network, but the other ones are only dedicated to Lightning. If you look for a wallet with a simple UI, Phoenix may be the best option for you. It has to be mentioned that all these wallets have been developed for Android and IOS.

Advantages and disadvantages of Lightning

Like all other innovations, Lightning has its own advantages and disadvantages. Its most obvious advantage is that it is cheap and fast. By the way, pay attention that, unlike Bitcoin’s main network, Lightning’s transactions only can be done when the two parties are online. For sending Bitcoin, you take the recipient’s address and make the transaction to him/her, and there is no difference if the recipient is online or offline. But in Lightning, you deal not with addresses, but with invoices. We previously mentioned that the recipient must create an invoice, and the sender must confirm it. This may be one of the limitations of Lightning. Among other limitations, we can refer to the complexity and ambiguity of the process. Even some professional Bitcoin users don’t know how they should work with Lightning yet.

Who created Lightning?

It was in January 2018 that two developers called Joseph Poon and Thaddeus Dryja published a whitepaper and introduced a new network called Lightning. In their whitepaper, they claimed that to solve Bitcoin’s scalability problem, there is no need to change Bitcoin itself. According to them, thinking of a solution for micropayments was much more effective and could reduce the load of the main network. Lightning Labs, a blockchain engineering company, with the help of other companies like ACINQ and BlockStream, executed the beta version of Lightning in March 2018. Lightning’s funding was done through seed funding, collecting 2.5 million dollars. It’s interesting to know that Jack Dorsey was one of the investors who participated in this funding.

The future of Lightning

Lightning is growing slowly and steadily. However, outside Bitcoin’s community, a few people are aware of Lightning’s advancements and its growing number of users and channels. The acceptance of Bitcoin as official money in El Salvador helps Lightning’s adoption. El Salvador, using the Strike application, can become Lightning’s biggest userbase. Reports reveal that 25% of El Salvador’s adults use Lightning wallets now. The Bitcoin-based rewarding system on Twitter is another factor that can lead to Lightning’s adoption. It lets Twitter’s 200 million users reward their favorite content using micropayments. The giant company BlockStream is now developing its unique version of Lightning called c-Lightning. Even Litecoin has its own Lightning network that, though smaller than Bitcoin’s, is experiencing an acceptable growth.

Conclusion

That Lightning is valuable or not depends on your opinion of Bitcoin. If you consider Bitcoin a store of value, then a network like Lightning may not seem so valuable to you. But, if you consider it a digital payment system, you will find out the value of Lightning. Lightning is trying to improve Bitcoin’s function as a payment system. What do you think about Lightning’s real-world use cases? Have you ever experienced it? Do you find it ready for mass adoption? Stay your opinions with us.