Everyone knows Lightning McQueen, the Disney Pixar movie main character. The red car is speedy and popular. But how about the Lightning Network? What is it?
Lightning network is being highlighted as a technology that can solve scalability problems surrounding Bitcoin.
Frankly, Bitcoin can handle seven transactions per second. However, as the cryptocurrency ecosystem grew and many people joined the network, the number of transactions sent on blockchain increased, which made Bitcoin’s processing power less effective.
It is a relatively slow processing time with higher fees. In fact, by the end of 2017, the fee for Bitcoin remittance had skyrocketed to $40. No one pays $40 as a commission to remit $4. These problems limit Bitcoin’s chances of making a leap into the global payment system. So the network is a perfect solution to solve this problem.
What is Lightning Network and how it works
Lightning network is a network that has established a data area outside (off-chain) except for payment channels in all transactions. It is also popular as Second Layer technology because it now forms a network like another payment channel inherited over the Bitcoin’s blockchain.
The lightning network is a method of processing data in different layers to minimize blockchain space. As IP protocol lacked IP address in the early days of Internet development, it is similar to the fact that it overcame limitations by inventing an address called domain.
Lightning network systems operate at peer to peer (P2P) levels, enabling instant cryptocurrency transactions between users based on so-called two-way payment channels.
After the two parties decide to open a payment channel, they can immediately exchange funds within each other’s wallets. Opening a new payment channel requires on-demand transactions. But all transactions within that channel (on-chain) can be processed immediately through smart transactions if the channel is forced to be created and funded once.
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