The Beta version of Lightning Network (LN) is now available after months of thorough testing and development by California’s Lightning Labs. This is the first real step the Bitcoin community and developers are taking to develop an off-chain solution in a bid to solve scalability within the network. Notably, by addressing scalability, there would be no processing wait time as transaction settlements would be through within seconds.
This is not the first release though. Other Bitcoin and blockchain companies as BlockStream and ACINQ have been working round the clock towards development of the Lightning Protocol. You should remember that like Bitcoin, the original version of the Lightning Protocol should be compatible with recent updates. Such open source software architecture makes the development of this protocol faster and secure since it eliminates centralization.
In the recent past, Bitcoin popularity has exploded especially after testing record prices in late 2017. Though adoption is important, the Legacy network remains the same and has its fair share of problems.
Bitcoin Scalability Concerns
Originally, Bitcoin’s transactions were supposed to be faster and cheaper than what banks currently offer. However, as more and more people joined the network, the opposite happened and that is understandable. It’s the network effect. At its peak, fees within the legacy network were as high as $20 and with settlement confirmation taking more than 24 hours.
To address this, there were several proposals. Segwit 2X was one of them but it flopped making way for Lightning Network.
How Lightning Network Works
Lightning Network will work by opening payment channels that allow parties to transact without having to post transactions on the Legacy network. Within the Lightning Protocol, only the resulting balances are recorded before settling transactions. This way, there is elimination of time and transaction limits meaning everything is instantaneous. So far, there are more than 1,000 Lightning Network nodes and more than 1,500 channels.
Elizabeth Stark, the founder and CEO of Lightning Labs, says that their target market is mostly online merchants. It’s an obvious choice because the network can facilitate high volume transactions and negligible fees allow for micro-payments.
Even with all this excitement, Stark emphasis caution. At the moment, the Lightning Protocol has some few built in safety measures limiting the amount of Bitcoins clients can trade. The upper limit of BTC worth of trades per channel is at $1440 with payments at $400.