For several years, the bitcoin community has been discussing SegWit and the Lightning Network - technologies designed to solve the problems of cryptocurrency nomber 1. Recently, discussions have become noticeably more active, because the developers from Bitcoin Core and Blockstream have finally switched from words to actions. What is SegWit and Lightning Network? Why are they needed and can the market indicators affect the Crypto-currency? How do they work and where are they already implemented? About all this, as well as how investors react to the crypto-currencies with SegWit and Lightning Network, let's talk further!
What is SegWit and how did this protocol appear? For the first time, the need to update the Bitcoin protocol was started in 2012. Along with the sharp increase in the number of users, the number of transactions that have begun to overload the network has also increased.
It turned out that the usual protocol with blocks of 1MB size does not cope with the increased loads. As a result, the speed of execution of transactions began to fall precipitously, and commissions for their confirmation - just as rapidly grow.
In addition, under conditions of overload, more and more unconfirmed transactions began to be downloaded. Sometimes users had to wait for several days until their transaction was finally reviewed and confirmed.
At first, the combination of several payments into one transaction helped to cope with the problem. But soon this was not enough. Some members of the network campaigned to hold a hard-core and increase the size of the block. But such an idea did not receive mass support among the members of the bitcoin community.
And in 2014 Peter Vuel, Gregory Maxwell and Matt Corall from the Bitcoin Core team put forward their proposal - to transfer Bitcoin to the updated Segregated Witness (SegWit) protocol. Later they merged into Blockstream, which is still engaged in the development of blockbot offers based on Bitcoin.
As you know, the transaction in the Bitcoin network consists of 2 parts:
- Basic information (who, who and what sends).
- The so-called Witness information, which contains a cryptographic confirmation code for the transaction.
The idea of the developers was to leave only the basic information in the block, and take the witness out of the blockchain. Hence the name Segregated Witness.
In fact, with SegWit, an add-on is created on top of the Bitcoin main block, into which part of the data is transferred. This helps to unload the network and increase its throughput without changing the block size. However, even with the full transition of the network to the SegWit protocol, its bandwidth can only be increased by a factor of 2. And this is still not enough to achieve the fastest Bitcoin work. But the developers from Blockstream found a way out of the situation. After switching to SegWit, they suggest using the Lightning Network.
What is Lightning Network and how did this network come about?This is the so-called second layer network. Lightning Network also works on top of the blockbuster and sorts out some of the load from the main chain.
The basic idea of the Lightning Network is quite simple. If users X and Y often exchange funds within the network, then why should each time download the blocking system with their transactions? It is much more convenient to create a communication channel for them by which they can send their transactions without even adding them to the main chain.
This technology is not only convenient, but also easily feasible. To start your payment channel, users must create special nodes - nodes that support the operation of the superset network. And for this you just need to install a special purse with support for Lightning Network.
This idea has become revolutionary not only for Bitcoin, but also for many other crypto-currencies. A typical scheme for conducting a transaction is as follows:
- The sender wants to transfer a certain amount of coins to another user.
- He creates a transaction and pays a commission for it. But at the same time, thousands of other users also make their transactions. All of them are sent in a long queue for confirmation.
- Under conditions of high load, the sender has to wait until one of the miners finally reaches his transaction. If he wants to be confirmed as soon as possible, he will have to pay an increased commission.
And all these transactions take place in the blocks of the main block, use its information resources and slow down the work of the entire network.
With Lightning Network, a large part of transactions are simply output from the blockroom and processed in the superset network. These are the so-called off-line transactions, that is, transactions outside the chain.
Blockstream emphasize that, although SegWit and Lightning Network are separate technologies, they should be considered in the complex. Since the first creates a foundation for the implementation of the second, and together they solve the problem of congestion of the Bitcoin network.
How will the introduction of SegWit and Lightning Network affect the market?According to experts, the introduction of SegWit and Lightning Network positively affects the market performance of the crypto currency.
First of all, there is a growing popularity and demand for coins. This is due to the increase in network capacity and the reduction of transaction commissions.
This is easily seen from the example of Litecoin. After switching to SegWit, the coin rate in just a few months grew from 10 to 70 dollars. And after the introduction of the Lightning Network reached its historic maximum - 230 dollars for 1 LTC.
True, after the update bitcoin price Litecoin sank, but still does not fall below the mark of $ 100.
As for the bitcoin itself, so far the innovations have not been particularly reflected in its market indicators. After all, now SegWit only works 15% of the network nodes. But the transaction commissions have already declined noticeably.
So, in December the peak commission was 23 dollars, in January the average payment for conducting the transaction was at the level of $ 10, and in February it fell below $ 1 and continues to decline until now.
Experts are sure that such changes will return users confidence in bitcoin, which many lost after the top online sites refused to accept payment to the BTC precisely because of high commissions.
By the way, on SegWit actively pass and crypto-exchange exchanges. Binance, Bitfinex, Kraken and Coinbase are already using the updated protocol, thereby reducing transaction fees by 25-50%.
Of course, the Lightning Network is displayed to a greater extent on the technical characteristics of crypto-currency networks. The features of SegWit are still quite limited. But it is he who simplifies the process of creating a network of payment channels over the main blockage.
Many experts are confident that the use of new technologies will raise market rates of crypto currency and expand the scope of their application.
Experts emphasize that the transition to SegWit and Lightning Network should be a positive signal for investors. After all, their implementation is necessary only for serious projects that are interested in attracting new users and strengthening their market positions.
So, what do u think about Segwit and Lightning Network technologies?
