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The Lightning Network, a Layer 2 protocol for evolving the Bitcoin network with fast, cheap, and private transactions, now holds over 2,200 BTC in its channels. The scaling solution proposed in 2015 by Joseph Poon and Thaddeus Dryja has more than doubled its bitcoin capacity in one year, with currently more than 65,000 open channels.
One year window of Lightning Network status by Bitmex Research.
Lightning has seen strong growth this year. The capacity of the network saw a 46% increase in less than two months – in June, it housed around 1,500 BTC.
Why the Bitcoin Lightning network exists
Lightning was designed to scale the base layer of the Bitcoin network. Bitcoin relies on a distributed ledger, cryptography, peer-to-peer network, consensus protocol and a difficult to produce but easy to verify process to add entries to the blockchain to ensure openness, resistance censorship and lack of confidence. Together, these features solve the problem of double spending and make Bitcoin the first and most suitable peer-to-peer electronic payment system – a distributed network that enables uncensored payments to be made between suspicious parties without resorting to intermediaries.
However, this is quite expensive to achieve and the many nuances involved do not allow for scaling of the base coat. The blocks must be kept small, for example, so that the cost of operating a node remains low and, therefore, the network remains distributed. But if Bitcoin is to reach its destiny and become the global currency and the default value system, it has to evolve. This is where layered scaling comes in.
How lightning works
The Lightning Network is a layer 2 protocol for Bitcoin. It uses Bitcoin’s base layer and protocol to disregard small transactions between users outside of the Bitcoin blockchain. With smart contracts, Lightning can settle the final balance of these payments in the base layer while ensuring that all transactions follow protocol rules.
Therefore, only channel opening or closing transactions are recorded on the base layer of the Bitcoin blockchain. By not requiring the transaction fees or waiting times that on-chain Bitcoin transactions typically do, Lightning enables its users to enjoy affordable, fast, and private payments.
Under the hood, the protocol creates a multi-signature address, known in Lightning as a “payment channel,” in which the two participating users each hold a private key. The two users can then share the funds in the address but prevent one of them from acting maliciously to the detriment of the other. If one user makes a payment to the other, their respective balances in the payment channel are updated, showing the share of the total channel funds that each user will get when the channel is closed.
Maturity promotes adoption
Since Lightning Network launched in beta in March 2018, it has seen significant growth and increased adoption. As the network matures, more applications that leverage it are created and existing ones are enhanced. As a result, non-technical users can more easily venture into Lightning, further expanding its reach and propelling Bitcoin into an established medium of exchange.
This year, Lightning has seen rapid growth amid rising Bitcoin adoption. In April, the network hit the 10,000 node mark, and a month later the very first dual-funded mainnet Lightning channel was opened. In July, BlueWallet released its new LDK mobile implementation, Blockstream announced the Greenlight Lightning node service, and Breez welcomed Seetee as its latest investor.
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