Over the past 12 years, we’ve seen what areas of Bitcoin (BTC) need improvement. The big one that always comes up is scalability. Currently, on the Bitcoin blockchain, a block is created around every 10 minutes. Although that doesn’t seem too bad, issues arise when many people try to use the network at the same time—transactions can take longer and become more expensive.
Luckily, people are aware of the problem and many developers have worked hard to come up with a solution. One of the more prominent solutions was to add the Bitcoin Lightning Network.
What is the Lightning Network?
The Bitcoin Lightning Network is a layer two or off-chain solution to the scalability problem. This means that Lightning is a second layer that’s built on top of the BTC blockchain—it has its own nodes and software that communicate with the main blockchain through mini-ledgers called channels.
By building on top of the current chain and using smart contracts, the Lightning Network can speed up transactions and reduce associated fees. It’s kind of like having your own personal highway for faster and cheaper BTC transactions. To maintain security on these channels, the network uses something called Hash Timelock Contracts (HTLCs), which allows users to set conditions to be put in place to avoid scams.
To give you a better understanding of how the Bitcoin Lightning Network operates, let’s put it into a real-world scenario: Dave wants to send Bitcoin to Bill using the Lightning Network. To create a channel, they’d both have to put BTC in to fund it. Let’s say they both put in 6 BTC each. This means that the total balance of the channel would then be 12 BTC.
As soon as that channel is created, the highway is open. They can now send as many transactions to each other as they want, so long as the transaction doesn’t exceed the balance put in. If 2 BTC was sent to Bill, Dave would then have 4 and Bill would have 8. They can keep doing this as long as they please but as soon as they decide they’re done making transactions, the channel will be published and the main chain will be updated.
It’s kind of like adding someone to the speed-dial on your phone—it’s best for people and shops that you constantly transact with.
The importance of the Lightning Network
By creating a channel with someone, you can literally make thousands of transactions—all at faster speeds and lower costs.
The true importance of the Lightning Network lies in its ability to make micropayments more efficient, which is something that has plagued the main BTC blockchain for a while now. Imagine having to pay a transaction fee that’s more expensive than the transaction itself. That can get a little frustrating and has even turned people off of Bitcoin as a whole.
The Bitcoin Lightning Network fixes that problem. With your own personal highway, you can send as little as 1 satoshi and not have to worry about a hefty fee. Comparing this to the main chain—which has a minimum trade amount of around 0.0000055 BTC—it’s easy to see that Lightning can change the way people use BTC for microtransactions.
If the majority of the current BTC users adopt the Lightning Network, it could free up the main chain for bigger transactions and decongest it so that people who do use the main chain won’t anymore experience absurd fees and long processing times.
The Lightning Network’s use-cases
Now that you understand the bigger implications of the Bitcoin Lightning Network, you’re probably wondering how it can affect your daily life. To help you understand just how important it is, here are a couple of use-cases for the Lightning Network:
✍️ A new payment model for content creatorsWith more efficient micropayments, all content creators now have the option to receive royalties in Bitcoin in a cheaper and faster way. This includes creators like streamers, artists, bloggers, and more
🔁 Send and receive money from your family and friendsLooking to send and receive money instantly and privately? Try out the Bitcoin Lightning Network to streamline those transactions.
👏 Donate to your favorite internet personalities and organizationsWant to show your support in your own little way? The Lightning Network is the way to go. Make small payments almost instantaneously without added fees.
Paxful’s Lightning Network integration
We recently integrated the Lightning Network into the Paxful platform. This means that you can try it out yourself and make lightning-fast transactions. Here’s how to do it:
- First, head to your Wallet
- Click on the Lightning tab
- If you’re sending money, click Send, paste the invoice from the recipient, then click Pay
- If you’re receiving money, click on Receive to generate an invoice
It’s that simple. With this new feature, you can send and receive payments in a more efficient way. This is perfect for business owners who are looking to get paid in BTC. Head on over to our knowledge base to learn more about the Lightning Network on Paxful.
Want a real-world example of the Lightning Network? Check out the Lightning Diaries and see how Bri and Renata explore El Salvador using nothing but their Bitcoin wallets.
Today’s forecast
A year ago, the Lightning Network may have been called a pipe dream—something that enthusiasts can only hope for. At that time, it was a promising idea that hadn’t yet been implemented on a larger scale.
However, today’s forecast tells a different tale. Now, with platforms integrating the Lightning Network into their systems, what used to be called a “pipe dream” is now a reality—all we have to do is wait for the rest of the world to catch on and then the revolution can finally begin.
