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Blockchain Semantics Blog What is a Lightning Network on Blockchain?

What is a Lightning Network on Blockchain?

Feb. 17, 2018, 8:47 a.m. GMT

The Lightning Network is a decentralized system for instant, high-volume micropayments that removes the risk of delegating custody of funds to trusted third parties.

The lightning network aims to solve the problem of non-confirmation of micropayments and high confirmation time of transactions. The network creates a payment channel between two peers. This channel is bound by rules and any transaction to occur in this channel will have to be signed by both the peers. The transaction within the network does not actually go to the main Blockchain. It is stored in the local ledger copies of both the peers. Rules are usually set to define a cutoff date after which the final state of transactions within the lightning network would go to the Blockchain. 

Let’s take an example to understand this. Let’s say Alice has 10 BTC and Bob has 5 BTC when a channel was created between them. Now, Alice pays to Bob 1 BTC everyday for 6 days. In the channel, there will be 6 transaction records in the local ledger copies of Alice and Bob. Now, when Alice and Bob decides to close the channel and commit the transaction to the Blockchain, there will only be 1 transaction indicating Alice paying 6 BTC to Bob. 

You could see that since every transaction is not getting recorded on the main Blockchain, it is a lot quicker and scales a lot better than the Bitcoin Blockchain. Please note that this is still a concept and not yet applied on the Bitcoin Blockchain. 

The lightning network is specifically designed for Bitcoin. But altcoins that are forked from Bitcoin’s codebase — like Litecoin, Dogecoin or Zcash — are typically capable of hosting lightning networks as well. Other altcoins, as long as they include similar or more extensive scripting capabilities (like Ethereum or Ethereum Classic), enable similar solutions. 

The most widely respected proponent of the lightning network is Charlie Lee, the founder of Litecoin. He puts the concept of the lightning network very succinctly when he says this is what will take Bitcoin from being a store of value to the currency for everyday transactions. Think of it as exactly what fiat currency did to gold.


 To learn more about Lightning network, how it will be implemented along with the Bitcoin mainchain, pls visit Blockchain and Bitcoin Certification by Blockchain Semantics.

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