What Is The Lightning Network?

Before understanding the Lightning Network, you will need to understand how the Bitcoin protocol works. If you are not familiar with how Bitcoin works (Mining, Proof of Work, Transactions, etc) I would recommend checking out this link. I may do an article with a simple overview in the future.

Lightning Network Map of Nodes and Channels

Source

What is the Lightning Network?

Lightning Labs provides a fantastic explanation (if this is too dense skip to the next section):

The Lightning Network scales blockchains and enables trustless instant payments by keeping most transactions off-chain and leveraging the security of the underlying blockchain as an arbitration layer.

‌This is accomplished primarily through “payment channels”, wherein two parties commit funds and pay each other by updating the balance redeemable by either party in the channel. This process is instant and saves users from having to wait for block confirmations before they can render goods or services.

Payment channels are considered trustless, since any attempt to defraud the current agreed-upon balance in the channel results in the complete forfeiture of funds by the liable party.

By moving payments off-chain, the cost of opening and closing channels (in the form of on-chain transaction fees) is amortized over the volume of payments in that channel, enabling micropayments and small-value transactions for which the on-chain transaction fees would otherwise be too expensive to justify. Furthermore, the Lightning Network scales not with the transaction throughput of the underlying blockchain, but with modern data processing and latency limits — payments can be made nearly as quickly as packets can be sent.

Source

Here is the explanation in simpler terms:

The Lightning Network provides a layer of payments above the Bitcoin blockchain layer that is reliable and inexpensive. If you have tried moving funds over the blockchain, you know it is expensive (especially now) and takes some time (at least 10 mins). With this layer of payments happening above the blockchain, you can make transactions more practical for Bitcoin. The Lightning Network is so fast and reliable, that you can literally stream Sats (for the newbies 100 million Satoshis = 1 BTC) by the second. Think about the possibilities of being able to charge for content on a usage basis.

Ryan Gentry (@RyanTheGentry) of Lightning Labs says to think of the nodes on the Lightning Network as cities across the country, and the payment channels as roads between them. The size of the road is determined by the amount of traffic moving across the road and the uptime the channel has. You can see the map of lightning nodes and channels in the first image. Hopefully this is beginning to show you why Lightning is an amazing technology.

Cheers!

None of this is investment advice. Everyone is responsible for their own investment decisions. Be smart.

Treasury Analyst turned Bitcoiner. Making it easier for everyone to learn about the Lightning Network. Twitter: @_kingbrett