Lightning Network: what is it?

the Bitcoin was a revolution in itself, and its alleged designer, Satoshi Nakamoto, seems to have taken into account most of the problems that might arise when he set the rules for this currency. However, he failed on three points:

• over the years, the blockchain has seen its size grow disproportionately: 360 GB at the beginning of November 2021;
• moreover, the transaction processing is known for its slowness: around 7 transactions per second worldwide;
• as a result, the cost of processing these transactions and the energy consumption which resulted from it became very high.

These three imperfections were capable of making Bitcoin incompatible with widespread use as a currency in everyday use. However, from 2021, a country like Salvador has been able to adopt it as a common means of payment and others, such as Brazil, Nigeria and South Africa have followed suit. If this is so, it is thanks to an extension called the “Lightning Network”.

One million transactions per second on the Lightning Network

As soon as you use the Lightning Network, the statistics are dizzy:

• this system allows a million potential transactions in one second;
• the validation of a transaction is carried out in less than three seconds;
• the validation costs are of the order of a few cents.

As much to say, theuniverse Bitcoin comes out of it transformed. So how exactly does it work?

A layer parallel to that of Bitcoin

The Lightning Network establishes a payment channel parallel to the main Bitcoin chain, on what is called Layer 2.

Imagine that Alice and Bob establish such a payment channel via a common, so-called “multisignature” portfolio. Alice and Bob will be able to exchange satoshis (i.e. 1/100 millionth of Bitcoin) for several days, weeks or months. All these exchanges will be done in parallel with the main chain. And then, after a while, one of the two protagonists can decide to close the channel. Only then will the wallet created between Alice and Bob be emptied and integrated into Bitcoin’s main chain.

Rise in power

What distinguishes a transaction carried out on the Lightning Network from one usually carried out on Bitcoin is that it is the recipient of themoney (usually the merchant) who creates a payment invoice. The consumer scans this invoice with his smartphone from a application portfolio (or wallet, in English) and voila!

Created in 2015 by two academics, Joseph Poon and Thaddey Dryja, the Lightning Network was converted into a functional program in 2018 and then put into operation. It experienced a first growth during the year 2020. However, from the moment when El Salvador adopted Bitcoin as legal tender, the Lightning Network experienced a huge rise: between May and October 2021, the number of channels increased by 80%. The inhabitants of El Salvador quickly adopted wallets such as Chivo or BlueWallet and thus got used to paying their consumption as simply as possible by scanning a QR Code from their wallet.

What’s more, many applications have started to integrate the Lightning Network, namely:

• e-commerce as with shopinbit.com ;
• finance applications, such as LN Markets;
• “play to earn” type games, for example via the Zebedee system.

A report of Arcane Research, published in October 2021, estimates that the Lightning Network is expected to have 700 million users by 2030.