When Bitcoin was first proposed by Satoshi Nakamoto in 2008, the very first public comment on the system made by James A. Donald contained the following line: “the way I understand your proposal, it does not seem to scale to the required size”. Due to the growing popularity of Bitcoin in recent years, the issue of scalability became more acute. Bitcoin’s community came up with various proposals on how to improve it; however, consensus could not be reached. However, there is one proposed solution currently being tested that might work. It’s called the Lightning Network. What is the Lightning Network? The Lightning Network (LN) concept was created by Joseph Poon and Faddus Dryya in 2015. The main idea of the project is to develop a payment protocol that can be used as a solution without using chains. It will solve the scalability problem faced by the Bitcoin blockchain, but the concept can also be applied to other cryptocurrencies. The implementation of the Lightning Network was driven by the constraints faced by Bitcoin and many other cryptocurrencies. Currently, the Bitcoin blockchain can only handle 2 to 7 transactions per second (TPS). As the cryptocurrency ecosystem grows and more people join the network, the number of transactions also increases. As the network becomes more and more congested, the overall performance is compromised. It significantly reduces the practicality of using Bitcoin as a global digital currency. In this context, LN was created as an attempt to lighten the load on the Bitcoin blockchain network. How does it work? The Lightning Network consists of an off-chain network that is built on top of the Bitcoin blockchain. The system operates at the peer-to-peer (P2P) level and its usability is based on the creation of so-called bidirectional payment channels. Thanks to them, users can make seamless transactions with cryptocurrencies. Once the two parties decide to open a payment channel, they can transfer funds back and forth through their wallets. Although the process of creating a new payment channel involves a chain transaction, all transactions that take place in the channel are not related to each other and do not require global consensus. Thus, these transactions can be quickly implemented using a smart contract. Therefore, the commissions will be much lower, and the TPS is much higher. To open a payment channel, two interested parties need to create a wallet with multiple signatures and deposit part of the funds into it. Funds stored in multi-signature wallets can only be accessed if the private keys of both parties are provided (two or more, depending on the case). It means that one party cannot open a wallet without the consent of the other. As an example, let’s say Alice wants to use the Lightning Network to trade Bitcoin with Bob. First, they created a payment channel using a multi-signature wallet. While the payment channel acts as a smart contract, the multi-signature wallet acts as a vault. It is there that the deposit funds are sent, which will be sold in the future. While the payment channel is running, Alice and Bob can perform as many offline transactions as possible. Immediately after each transaction, both Alice and Bob sign it and update their copy of the balance, which contains the number of coins of each. When they have completed all the desired transactions, they can close the payment channel and write the balance sheet to the Bitcoin blockchain. Lightning Network smart contract ensures that they receive their Bitcoins according to the latest balance sheet. As a result, the parties involved only need to interact with the Bitcoin blockchain twice. One time to open a payment channel and another to close it. It means that all other transactions that happen on the channel do not directly interact with the main chain. Who developed it? Lightning Network was first described in a white paper by Joseph Poon and Thaddeus Dryja in 2015. There are currently three teams collectively carrying out most of the work on the development of the Lightning Network: Blockstream, Lightning Labs, and ACINQ, with input from other members of the Bitcoin community. Each of the startups mentioned above is working on their implementation of the Lightning Network Protocol written in different programming languages (C, Goland, or Scala). Moreover, there are other implementations currently in development. The full list is available here. Finally, it is significant to mention that the recent tests have proven that the three notable implementations are fully interoperable, which means they can seamlessly work with one another. Where, when, and why will it be used? It seems that the cryptocurrency community is eagerly anticipating the launch of the Lightning Network. It was designed specifically for Bitcoin, but the technology is currently being developed for an array of other cryptocurrencies, such as Stellar, Litecoin, Zcash, Ether, and Ripple. Real Bitcoin has already been sent and nearly always received using Blockstream’s, Lightning Labs’, and ACINQ’s implementations, proving that all three of those are interoperable. Moreover, the first version of the lightning specifications outlining the rules of the network has been published. Those specifications are a huge step forward for the network, as they can be used by developers of applications and the implementation of the Lightning Network in other programming languages. However, the network is still very much in its infancy. As of yet, there’s no software with which real-life casual users of the network can make transactions. Moreover, the current implementations are still quite buggy. Lightning Network developers have urged users to learn about the network using Bitcoin’s testnet and not send any real money. The developers are also advising users to stay patient, as the network’s code is very complex and requires rigorous testing. To be fully adopted by the Bitcoin community, the Lightning Network will need to prove itself to be safe and usable. With that and many other factors in mind, experts predict that a fully working Lightning Network can be from several months to a couple of years away. As to the reason why the network will be used, the answer is simple: scalability. If the Lightning Network will provide a solution to Bitcoin’s main issue, it will most likely be adopted by other cryptocurrencies. If that happens, there is a possibility of cross-chain atomic swap technology being developed further, thus marking a first step towards building decentralized cryptocurrency exchanges. Pros As we mentioned before, the Lightning Network is only making its very first steps. It’s still very much in development, and whether it will work as the developers imagine it remains to be seen. If it does, here are some of the most prominent advantages of the Lightning Network you can benefit from: The project is working towards an off-chain solution to the scalability problem. If successful, it can reduce traffic on the Bitcoin blockchain.Through the use of bi-directional payment channels, the Lightning Network enables near-instant transactions.The technology can be suitable for micropayments since it allows the transfer of an amount of 1 satoshi. Besides, automated micropayments can be implemented in a Machine-to-Machine economy, where transactions are made between electronic devices without human intervention. Cons However, there are some drawbacks: Unlike in-chain transactions, payments cannot be made if the recipient is offline.Network members may need to regularly monitor payment channels to keep their funds safe (this risk can be avoided by monitoring outsourcing).The network is not suitable for large payments. Since the network counts many signatures (which are mostly shared wallets), there is a high chance that they will not have enough balance to broker large payments.The opening and closing of a payment channel are associated with an on-chain transaction. It usually requires manual processing and higher transaction fees. Again, it is worth pointing out that both the advantages and drawbacks of the Lightning Network listed above are very speculative. Should I use the Lightning Network? Well, if you’re not an advanced user, you can’t use Lightning Network just yet. So, the best – if not the only thing you can do right now is to wait and see whether the lightning network lives up to the hype, whether it can function and describe and whether it’s safe. Bear in mind, the Lightning Network is not the only scaling proposal out there, and it’s by no means an undisputed leader in that race, with Bitcoin Cash (BCH) being its main rival. The debate between the BCH adepts and the Lightning supporters is fierce and there’s no end in sight. It could be that one of those proposals comes out on top, they could potentially coexist, or there can be an entirely different solution. The Lightning Network sounds exciting. If it delivers, consider what you use your Bitcoins for. If you use the tokens as a long-term investment and nothing else, you might not even need the Lightning Network, as currently, it doesn’t seem entirely safe to entrust it with handling big transfers. But, if you view Bitcoin as an alternative form of payment, the Lightning Network, provided it lives up to the expectations, will be essential for you. Instant micropayments, increased anonymity, almost non-existent fees – it seems to offer solutions to most of Bitcoin’s problems.