The short explanation of what is lightning network:
In this article, I will try to answer what is Lightning network and why it’s needed from the perspective of today needs of the bitcoin network. As we already know Bitcoin Network is clogged down, scalability issue is enormous concern from today economic standpoint of the financial system.
With today’s blocksize bitcoin can serve only 7 transactions per second with current block size which is 1 MB. It’s not enough from the viewpoint of for example Visa which average serves 4000 operations per second and can serve max 65 000 per second it’s vast dominance in the scope of the payments system. Comparing to other cryptocurrencies such as Ethereum which amount of TPS( transactions per second) are 15 and Ripple are 1500 TPS whats really outclassing bitcoin.
What can we do about it? If the main blockchain isn’t very scalable, we can look for off chain solutions, and there goes lightning network. The lightning network is mainly off chain solution and solves a problem of the small transactions for items that we usually buy ordinarily just like coffee in a coffeehouse, which price is not excessive so can keep off-chain which is called payment channel. The possibility of making payment transferring outside blockchain is due to penalizing uncooperative participants. When opening a channel, participants must commit an amount (in a funding transaction, which is on the blockchain). Time-based script extensions like CheckSequenceVerify and CheckLockTimeVerify make the penalties possible. In theory there, only a few nodes that should exist in the lightning network and users should mainly be connected through multiple hops among them.
Limit inside Network is 0,5 BTC which can be transferred freely and openly. Also, transactions with high-fees are proceeding faster because blockchain node is loose and not occupied by the vast amount of operations per second. Lightning Network is not working unfortunately when you want to send more money; it’s not a designed well for that opportunity. The limit is 0,5 BTC and fees inside lightning network are incredibly small. There can be hundreds transaction because they are active and happening off-chain. To open and close operations are registered on the blockchain only. When participants in the transaction had active channel earlier, they don’t open new direct channel. The receiver gets the money for the purchase when the transaction is closed and register on the blockchain. What is vastly relief for the main blockchain which can be lightened. In the time of writing this article Lightning network is still in beta phase and we can’t see what is lightning network in full spectrum, right now we have proof of concept bitcoin phase on Bitcoin Testnet and experimental implementation on Bitcoin Mainnet. Probably the first actual 1.0 release of Lightning network will be at the end of 2018. Payment channel can be closed at any moment, either by on the side of operation or second side.
Bitcoin fees at the particular moment are exceeded there were even 30 dollars it was way bigger than Lightning network fees which are minimal. In December 2017 when Bitcoin gained his peak, fees were also at peak reaching even 50$. Verification time for bitcoin is also not that short as it should be, it can really be above hour whats comparing to ethereum which is 2 minutes is a tremendous amount of time. These all things combined are leading to looking for better solutions improving all the aspects of bitcoin, and there goes Lightning Network and what is lightning network and who created and when these are the questions that come to our minds naturally. But the more important question seems to be is this solve scalability and fees problems also are it speed up the transactions, privacy issues seem to be too the case. The answer is yes, benefits are clear: Tiny payments for coffee, for example, the Enormous speed of transactions, privacy is also improved: For instance, main key privacy issue may be the latest sign balance sheet can be used to unlock the payment. Limitations are noticeable. For instance, no offline fees, and restrictions related to large payments.
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Sources:
https://coincenter.org/entry/what-is-the-lightning-network