This topic was posted by RapTarXClick on his username to direct you to the main thread to read replies that were given merits. This is important.
To understand have the basic understanding about lightning network
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IntroductionLightning Network or shortly LN is an emerging feature which can drastically change the picture of bitcoin adoption solving the problem of the higher fee for micro payments and slower confirmation issue. Although still it's not implemented in most of the wallets, we can expect it to be soon.
Table of Contents1. What is Lightning Network?2. How LN works? (i) Channel (ii) Route3. A Real Life Explanation4. Advantages of LN5. Will it increase massive adoption?1. What is Lightning Network?Lightning Network is a feature which will allow you to transact bitcoin outside the Bitcoin Main Chain. It's a protocol on bitcoin blockchain. You will be able to send, receive bitcoin with
lower fees, any amount(see the first reply from BitCryptex), faster than ever. It will basically help you to send & receive micro-payments.
Imagine, you have visited Alice's Coffee Shop, had a coffee for $2. Paying $2 with bitcoin is still possible but for $2, you may have to pay more fees sometimes, moreover, Alice will not agree to have confirmation of the transaction after 3/4 hours of your leaving the shop.
Two problems we see when you want to pay $2 for a coffee.
- You will not be happy to pay $1 fee for spending $2 worth of BTC.
- Alice will not accept BTC because it requires much time to get confirmed.
But, now with Lightning Network, you don't have to pay a huge fee for spending $2 worth of BTC, nor Alice will have to think about the slower transaction.
2. How LN works?In Lightning Network, you have to create a channel with the other party. In the channel, you will be able to transact bitcoin frequently with low fee, faster and any amount.
Creating a channel means having an agreement with the other party. In other word, you and the other party will have a multisig wallet where you both will be able to transact bitcoin frequently. For your info, when you are entering into a channel, you have to pay a fee. It's same sending a transaction. After entering into the channel, whatever you transact, these log will not be updated into the blockchain. You you close the channel or leave from a channel, another transaction will be logged into the blockchain. In between entering a channel & closing a channel, all the transaction will be happened outside the bitcoin main chain and it's called settlement. Only your balance will be updated time to time but no main chain transaction will happen.
Two LN terms you must know-(i) Channel- Channel are the place where all the Lightning Network transaction of you and your other party will be taken place and logged in. It allows you to send & receive transaction in the Lighting Network.
(ii) Route- This can be called as a bridge between you and Alice Coffee shop. Assume, you are visiting 10 shops daily and want to pay with Bitcoin Lightning Network. Creating 10 channels with 10 shops for paying them is a big hassle and costly, and imagine, how much channel shops have to create since they are handling a thousands of customers. With Route, you may create only one channel and have able to pay in all the shops.
3. A Real Life ExplanationImagine, you visit 3 shops per week on average for purchasing your daily life stuffs; A, B, C
The shopkeeper accept Lightning Network payment. But, as like I mentioned above in
Route, they certainly will not create thousands of channel. It will create more hassle for them. They will want to create channel with a Lightning Network Node where most of their customers have already created channels. This way, the Lightning Node will act as a bridge between the shopkeeper and the customer. The below picture may help you understand the process-
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Bob= You
Route= Node with whom both you & the shop will create channel.
You or the other customers will create a channel with the Node, Shops will also create channel with the Node, that's how Node is creating bridge between customers and the shops.
Assume, you have created a channel and funded your address with 0.01 BTC. The initial funding will require transaction fee.
Now, you have purchased coffee 10 times from Alice's restaurant, you will be able to pay from 0.01 BTC, this will not require any transaction fee but
your Lightning Node (I mean
The Route/The Bridge) will charge a very low fee. Assume, each coffee is priced BTC 0.0003, you are paying 0.003 BTC.
Your balance is 0.007 (Will be low since you are paying a little fee). Now, you decided to close the channel for some reason. A transaction fee will be required.
Therefore, you are paying 2 transaction fee while you have transacted 12 times including the purchasing of coffee 10 times.
4. Advantages of LNa. Easy Micro payments
b. Faster transaction, no confirmation needed.
c. Lower fees.
5. Will it increase massive adoption?Till now, without Lightning Network, paying with bitcoin is very expensive sometimes when we compare paying $1/$2 for something. Also, with lower fee a transaction may stuck on the chain for a long time and get rejected after some times. Since Lightning Network is assuring instant transaction, very low fee transaction and easy micropayments, we can expect merchant will accept it more often than previous. More people will now feel comfortable paying with bitcoin for a lower amount. This is not guaranteed but a expectation since LN is reducing the resistance of bitcoin as a micro payment method.
Some more resources-Website-
https://lightning.network/Whitepaper-
https://lightning.network/lightning-network-paper.pdfA topic by
BitCryptex-
https://bitcointalk.org/index.php?topic=5158920.0Miscellaneous1. I never used Lightning Network.
2. I am not a pro.
3. This guideline will act as very basic level of explanation for the beginners.
