Three minutes to understand: How does Bitcoin’s Lightning Network work?

October 5, 2016, Bitcoin test online flash trading is done by first pen block chain technology company BlockStream team of engineers. Dr. Decker said in an interview: “This is an important milestone for the Lightning Network. This is the first time we have established a channel on a real blockchain with real latency and block rate, including Invoices, lightning transactions, and item delivery, where payment is routed from one node to another through a third node.”

After 5 years of technological upgrading and development, according to TXStats data, the Bitcoin capacity on the Bitcoin Lightning Network on October 2 exceeded the milestone of 3,000. Since breaking through 1,500 Bitcoins in June, the Bitcoin capacity of the Lightning Network has more than doubled.

With the increasing number of major Bitcoin adoption events such as El Salvador’s enactment of the Bitcoin Act and Twitter allowing users to use Bitcoin for tipping, the Lightning Network has shown that the number of channels and Bitcoin capacity have expanded as transaction activities have increased sharply. Ability. Since the beginning of the year, the number of bitcoins held in the Lightning Channel has almost tripled.


How does the Lightning Network work?

The Lightning Network is the second layer that runs on top of the Bitcoin blockchain and is directly anchored in it. And it can process millions of transactions per second cheaply and efficiently.

In the Lightning Network’s white paper, the authors describe their vision for how the Lightning Network can expand Bitcoin into a more efficient and faster payment network.

The white paper states: “Using the network of these micropayment channels, Bitcoin can scale to billions of transactions every day.” “Sending many payments within a given micropayment channel enables one person to pay in a decentralized manner. The other party sends a large amount of funds. These channels are not independent and trusted networks built on Bitcoin, they are real Bitcoin transactions.”

Below we will bluntly explain the Lightning Network by comparing the Lightning Network with the bar.

When you spend in a bar, you need to swipe your card every time you order a beer and settle the consumption. 


Or you can save time, energy and expenses by putting together all the beer bills at the end of the party and making a one-time settlement. This approach is similar to how the Lightning Network works.


Now, suppose your bar is running on the Lightning Network.

On the Lightning Network, when you want to start a transaction, you will open a payment channel that is similar to a running tab (beer bill). Therefore, when you start buying beer, these transactions will be recorded on the payment channel, just as they would be recorded on the bar bill book. However, it is not just the bills that are transferred on the payment channel, because they will be transferred on the tab (bill book), and the real bitcoins are transferred, so you are paying every tip for your beer in real time. These transactions are just not recorded on the blockchain. Bitcoin is only transferred between you and the bar through the payment channel.


When you complete the consumption and close the payment channel, the final settlement of the bitcoin owned by both parties will be broadcast to the blockchain to complete all transactions.


How does the Lightning Network expand the Bitcoin blockchain?

As we discussed before, the Lightning Network operates separately from the blockchain, but it is still anchored to the blockchain. The Lightning Network is where transactions occur, and the blockchain is where these transactions are completed.

Therefore, in your consumption in the bar, you actually only make two actual transfers on the blockchain. The first transaction is when you fund the payment channel with Bitcoin and open it, and the second is when you close the payment channel. But between these two transactions, you can make unlimited transfers within the channel on the Lightning Network. 

By conducting those potential transactions on the Lightning Network, we can reduce the burden on the entire blockchain, increase the transaction rate and keep transaction fees low.

However, you might think that it would be cumbersome to establish payment channels with hundreds of companies/companies, but this is where the Lightning Network really shines. You don’t need to open a direct payment channel with someone to pay. You can make payments to individuals and businesses through intermediary channels on the Lightning Network. 

How does the Lightning Network intermediary work?

Suppose you take your friend Bob to a bar. An open payment channel is established between Bob and the bar, but the bar provides one for you. Then Bob can still pay for the bar through your payment channel. It’s like Bob buying beer in your name and paying you the bill.


This is why the Lightning Network is so scalable. It finds the fastest path between two parties to record everyone’s transactions and ensures that everyone gets the corresponding Bitcoin. Even if there is no direct payment channel between two users, they can still pay each other through one or several other Lightning Network intermediaries. In this case, the intermediary will forward your payment to the payee. Therefore, instead of establishing hundreds of payment channels between all the companies/companies you want to patronize, you only need a few intermediaries, and the Lightning Network will automatically handle everything else.

So, this is Bitcoin’s Lightning Network. It combines speed, security and low fees, allowing Bitcoin to expand to a global audience and one of the most effective payment networks.

Posted by:CoinYuppie,Reprinted with attribution to:
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