- Bitcoin lightning network is reported to have several benefits that could trigger continued adoption in the coming years.
- However, there are liquidity and other challenges that are being addressed by key players.
Bitcoin lightning network operates as a peer-to-peer network of payment channels. Bitcoin veteran Andreas Antonopoulos has explained in his “Mastering the Lightning Network” article that:
the Lightning Network is a peer-to-peer network of payment channels implemented as smart contracts on the Bitcoin blockchain, as well as a communication protocol that defines how participants set up and execute these smart contracts.
According to reports, the lightning network has two-way payment channels and nodes that are in payment partnerships. In order to ensure that neither party can commit fraud, the channels are made to be cryptographically secure.
Satoshi transactions can be sent and received between channels without being recorded on the Bitcoin blockchain. Using the Lightning Network, transactions can be forwarded to other channels. The advantages of the Lightning Network are many, but the most common ones are the provision of scope for real-time settlement. Using the channels, Bitcoin can be sent to merchants.
Previously, fiat had to be converted to Bitcoin, before sending it to an account. Interestingly, it could take days. With the lightning network, there could be an instant availability of liquidity.
In addition, less energy requirements are needed in the Lightning Network. It is important to know that this feature utilizes off-chain transactions. It does not rely on the computational power needed to transfer money on the blockchain. On top of that, transactional costs appear lower compared to the other payment alternatives. Some platforms charge about 2 to 3 percent as transactional cost which affects the gross revenue of businesses.
More on the Advantage of the Bitcoin Lightning Network
Lightning Network does not require third parties to facilitate transactions. The two participants in the channel pay each other directly. Also, payment channels can remain open indefinitely. Another advantage of this initiative is scalability. There is no limit to the transaction throughput. This means up to a million transactions can be facilitated within a second. Micro-transactions can also be facilitated. In addition, there is an assurance of privacy as transactions are protected against traceability in case the node is operated through the TOR network.
According to expert Jonas Gross, the benefits of the lightning network could pave the way for massive adoption to take place in the coming years.
The adoption of Lightning will continue to increase in the coming years as soon as a broader audience becomes aware of the added value and beneficial applications. Also, the possibility of sending other assets, such as stablecoins, via the Lightning Network, might positively impact its development. Similar to the evolution of the Internet, Lightning’s technical complexity will soon be abstracted away which will reduce barriers to entry by providing a more intuitive user experience.
Previously, large payments faced serious liquidity management issues with the lightning network, in addition to off-ramp costs and volatility issues. Fortunately, companies including Strike and Lightspark are working to address it. Once this is addressed, the Bitcoin price could be impacted.
As of press time, Bitcoin was trading at $37,362.61 and has surged by 42.9 percent in the last three months, adding $11,225.77 to the previous price.
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