Cryptocurrency is continually revolutionizing payment methods. If you are a Bitcoin user, for instance, you can now enjoy its scalable nature. Also, you can have total control over your money. Unlike the traditional payment methods involving banks, or other financial institutions, the Bitcoin lightning network is here to allow users to enjoy the whole process. It is faster, cheaper, and more scalable. However, what exactly is it? How does it work? Why should you opt for the network? Please read on to get the answers to these and much more.
Bitcoin Lightning Network; What is It?
The bitcoin blockchain is the network’s primary layer. Next comes the Bitcoin lightning network, which was first proposed in 2015 by Thaddeus Dryja and Joseph Poon. Therefore, the lightning network is a second layer in the Bitcoin blockchain which facilitates payment and receipt of transactions through the use of micropayment channels. So, there are different payment channels between the parties involved. Remember, Bitcoin anchors the channels.
However, with the network, you don’t need to transact through a central institution like a bank. Notably, you can still enjoy the security and decentralized nature of the Bitcoin blockchain. Therefore, it adds to the network’s functionality and complements the main layer.
Additionally, the network was introduced to enhance the efficiency of Bitcoin. After all, with the popularity of Bitcoin, there was wide access, and this resulted in slowed transactions and high rates of fees charged. On the contrary, the Bitcoin lightning network is a solution to such problems. It is faster, cheaper, and highly scalable than the Bitcoin blockchain.
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How Does Bitcoin Lightning Network Work?
The Bitcoin Lightning network is a faster way for users to send and receive payments on the Bitcoin network. Notably, both Bitcoin users (parties involved) must interact within a payment channel. Here, they may incur certain charges.
Besides, the user must put some bitcoin on the blockchain at any time so it is visible to the network. Therefore, putting the coins in the blockchain creates a payment channel. Furthermore, this network incorporates smart contracts in the transactions taking place.
Moreover, the transactions are private. They are also free because they are peer-to-peer. However, if there is any involvement of a third party such as a crypto bank, they may charge a small fee.
Why Use Bitcoin Lightning network?
As a crypto user and enthusiast, you no doubt want an improved experience regardless of the system you use. After all, the Bitcoin lightning network was introduced as a solution to some of the challenges of the Bitcoin network at large. The following are reasons why you may consider using the network;
It is Fast
Speed is one of the amazing features of the bitcoin lightning network. How fast is it? The network can handle up to 1,000,000 transactions per second. This is greater than the main Bitcoin blockchain which can take up to 7 transactions in the same amount of time.
Has Great Scalability
The users of this network can enjoy the privilege of not going through several channels to facilitate payments. The parties involved can have direct transactions without involving other payment channels. Also, they can verify the transactions before adding them to the Bitcoin blockchain. Moreover, the network can accommodate many transactions at economic rates.
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It Reduces Energy Requirements
Cryptocurrencies like bitcoin consume a lot of energy when computing the information in the networks. Thankfully, with the Bitcoin lightning network, there are reduced energy requirements. As a result, running the blockchain is not extremely expensive.
Privacy
The transactions within the network are recorded on the chain when the channels are opened and closed. Therefore, a greater percentage of the micropayments will go unnoticeable.
It is Cheap
Bitcoin fees may at times tend to be very high. Thankfully, in the Bitcoin lightning network, users have a more economical way of making transactions. The good news is that using this network is cheap regardless of the size of the transaction or its frequency. Additionally, the users can send or receive the coins at a reduced fee.
Concerns With the Network
As much as this is a network with solutions to the Bitcoin blockchain, there are certain user concerns. These are some of the user concerns with the network;
Channel Fraud
When a user closes the channel during a transaction and then goes offline, there could be the possibility of the other party having malicious intentions. In such a scenario, the other party may steal from the offline one.
Alternatively, there may be cases of double spending on the Bitcoin lightning network. How? A user may use the same money to pay two different people. this way, the first party remains with nothing whereas the second one gets the money. Therefore, there is a need for a third party who can run the nodes to prevent such fraudulent schemes.
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Hacks and Cyber Theft
Cybercriminals have more advanced techniques for committing crimes online. Therefore, the Bitcoin lightning network may be subject to hacks and theft. They may attack the channels, user wallets, or application programming interfaces.
Fees
Any user of the lightning network faces charges. These range from the normal Bitcoin cryptocurrency charges or the fees paid to the channel, or whatever third-party payment platform is keeping watch over the transaction taking place.
Is the Bitcoin Lightning Network Safe?
This is probably one of the questions you are asking yourself. Well, as earlier mentioned, the network is prone to malicious attacks and fraudulent activities. This, therefore, makes it, not 100% safe and secure. Remember, you should have the nodes of the network active, especially when sending or receiving payments. This means they should be online and sign in using the private keys. Unfortunately, these are the times when users are most at risk of getting hacked or attacked.
Should You Invest?
With the increased adoption of the Bitcoin Lightning Network and cryptocurrency as a whole, there seems to be a revolution in the payment industry. However, as much as this leading cryptocurrency is continually getting meaningful as the means of transacting value and reducing the limitations in the network, it still needs to improve its functionality. Nonetheless, the concept is still evolving. Unfortunately, the Bitcoin blockchain may still face other challenges that the Bitcoin lightning network may not solve. However, with the developments of technology and research, the future can be better.
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