Why is the lightning network important?

WHAT IS LIGHTNING NETWORK?

Referred to as the second layer to the blockchain network, the lightning network enables off-chain transactions (transactions between parties that are not present on the blockchain platform). Through this network, one can send or receive bitcoin at a much faster pace and with a minimum transaction fee. Here, payment channels and parties performing transactions make up the second layer, moreover, the network can be defined as a two-party transaction system which also enhances the scalability of applications while maintaining the security concerns. The lightning network is a component of a more contemporary class of crypto technologies (layer 2) blockchains. If you are interested in bitcoin trading, visit the bitcoin up to acquire an utter guide to crypto trading.

WHERE IS THE LIGHTNING NETWORK USED?

Twitter is a social networking platform that enables users to send or receive bitcoin “tips” through the lightning network. The strike is a compatible payment app designed through the network. The app allows users to receive or transfer bitcoins to Twitter accounts in no time and with no transaction fee. Apart from Twitter, substack is another creator-driven social media network to integrate the lightning network into their mechanism for bitcoin payments and transactions.

The wallet was designed to allow seamless international transactions between different nations. Moreover, the Chivo wallet was found to be the most downloaded app in El Salvador as of October 2021.

Paxful is a peer-to-peer bitcoin exchange that integrates millions of dollars worth of BTC value in the global market. The exchange claims to have a customer reach of 1.5 million and has recently published the launch of lightning payments onto their platform. Through this users can take the advantage of faster and more reasonable bitcoin payments for a wider audience reach.

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BENEFITS OF THE LIGHTNING NETWORK

1. Faster payment processing – The lightning network enables faster payments which are usually done in a fraction of seconds.

2. Security and privacy – The transaction is recorded on the public ledger blockchain only when both the parties have received their amounts and the payment channel is closed.

3. Minimal to no transaction fees – Unlike any other exchange platform, a lightning network enables users to perform transactions at a much lower to no transaction fee. Here accounting is done in thousandths of a satoshi.

PROS

  • Quick payments
  • No dependency on minders
  • Decreases burden on blockchain
  • Eliminates waiting time
  • Improves scalability concerns
  • Micropayment enabling
  • Mult-signature enabling

CONS

  • Can’t function without a lightning enabled wallet
  • Transferring bitcoin between wallets can be expensive
  • Offline transactions scams
  • Bugs such as verification issues and tucked payments
  • Understanding lightning network for regulators becomes difficult

IMPORTANCE OF THE LIGHTNING NETWORK

The lightning network allows two strangers not on the public ledger to interact and transfer value securely without the need of a credit card, payment processor, or third party in between. The network works under a distributed network of computers known as a blockchain where achieving consensus about bitcoin’s state becomes crucial. This issue can be solved by mining, as suggested by bitcoin founder, Satoshi Nakamoto.

Moreover, the lightning network was developed with an aim to enable bitcoin to function like digital cash. By processing off-chain transactions, the process can become cheaper and quicker. The lightning network is also less energy-consuming when compared to transactions made on the blockchain. For a fact, the lighting network (layer 2) can handle millions of transactions in a second, however, the blockchain (layer 1) can handle less than 10 transactions in a second.

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HOW CAN I START USING THE LIGHTNING NETWORK FOR MAKING PAYMENTS?

In order to start with lightning transactions, one needs to fund their lightning-compatible wallet with some bitcoins. There is a wide range of wallets to choose from however “custodial” and “non-custodial” wallets are the most popular ones.

  • Custodial wallets – Great for newbies, custodial wallets are simply the trading of currencies by managing private keys. Examples include – Strike, Satoshi wallet, blue wallet.
  • Non-custodial wallets – Popular among experienced investors, non-custodial wallets are controlled by the users where the private key is not stored, unlike custodial wallets. Examples include – Muun, Breez, Zap, and Phoenix. Here one could lose funds access if the private key is lost. Simplified, in the case of non-custodial wallets, private keys are not stored nor can be restored.

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