The blockchain bloat
Scalability is a crucial consideration for any currency. Whether it’s a government ensuring that there’s enough paper currency in circulation to meet day-to-day needs, banks having reserves on hands for transactions or payment programs having the tech capacity to handle multiple transactions going on at different times, it’s a critical part of what makes a currency viable.
Cryptocurrency is no exception to this rule. For all of the innovative tech it’s helped bring to market, Bitcoin was not designed with its current level of popularity in mind. The original Bitcoin Whitepaper was released in 2008 and obviously couldn’t anticipate all the eventualities that might occur. Though its Blockchain has been a highly effective piece of anti-fraud technology, it’s also one of the things that has kept it as an investor and trading currency rather than one used for day-to-day transactions.
Why? In the simplest terms, the Blockchain is overstuffed and bloated. It takes time for miners to verify transactions against the huge amount of data stored within. Only about seven transactions can take place per second — in contrast to the 45,000 or thereabouts that Visa can handle in the same period — meaning that buyers and sellers can potentially find themselves waiting hours for a transaction to finalise. Most of the time, it doesn’t take this long, of course — but even when you’re looking at transaction times of a minimum of 10 minutes or so, it’s easy to see why it becomes an impractical choice for basic purchases.
The easiest workaround at this point has tended to be providing a bigger Bitcoin network fee to encourage miners to prioritise the transaction. But this isn’t really an issue with other forms of payment, so it’s understandable that newer adopters will expect the convenience of fast payment without high cost.
It’s a problem that’s only going to get worse, too; as more Bitcoins are put into circulation, more transactions take place, and the Blockchain continues to grow. A variety of suggestions have been made around solving it; forking (i.e splitting) the Blockchain has been proposed, to allow it to continue on a more technologically sophisticated network. Rallying enough of the community to do this seems unlikely, though. Bitcoin’s decentralised nature is one of the things that’s made it so popular, and building the appropriate level of consensus is probably too difficult at this point. But there are alternative, more viable solutions being proposed — and that’s where the Bitcoin Lightning Network comes into action.
But what is the Bitcoin Lightning Network, you might be wondering?
The Bitcoin Lightning Network, explained
In concept, the Bitcoin Lightning Network is essentially an overlay on the existing Blockchain. It’s aimed at enabling smaller-scale, urgent transactions to be carried out more swiftly than might otherwise be possible on the regular Blockchain. After a preset time, the distilled information is uploaded to the main Blockchain, ensuring that everyone’s transactions are protected and that the Blockchain remains intact. So the BTC Lightning Network is something of a small-scale “lightning blockchain” unto itself.
Importantly, the Lightning Network isn’t geared for large-scale transactions to take place; rather, it’s intended more for day-to-day purchases like buying a beer or doing the shopping, for example. In practical terms, it’s a collection of Bitcoin users forming a temporary network to enable a series of transactions among themselves. Each user acts as a “node” within the network — sort of akin to a private server created for a LAN party or large-scale file transfers. Bitcoin lightning transactions can then take place within this network, with people utilising dedicated Lightning Network wallets.
This approach presents a number of advantages to Bitcoin users:
Separate from the unwieldy main Blockchain, only a fraction of the processing power and time is required to carry out a small-scale transaction. This is ideal for businesses and individual customers who are looking to carry out small-scale transactions. Sales could then be uploaded to the main Blockchain at the end of the day, rather than making customers wait needlessly on the spot.
More discrete transactions
By opting to pay with Lightning Network coin, it’s possible to subdivide the currency into far smaller units and make a variety of easier and more mundane transactions than is ordinarily required by using conventional Bitcoin wallets. It’s possible for it to serve as more of an everyday currency.
Buying with Lightning Network coins adds an additional layer of privacy; as the transactions are uploaded en masse rather than individually, the specifics are not recorded in the same fashion.
It’s not readily available to the public yet, but it’s not entirely in the realm of theory, either. At least three separate companies are working on the concept, with plans in the works since at least 2013. Trials have also been ongoing with select customers for many years, testing the concept’s viability. Twitter CEO Jack Dorsey has been a proponent of the concept — which is either a glowing endorsement or a damning indictment, depending on how you feel about the man — and it’s garnered a certain amount of support within the crypto community as a prospective solution to a complex problem.
This isn’t to say it entirely solves all of the issues, though. The Lightning Network status and its participants must all remain online until a previously agreed-upon time, in order to ensure that the transactions are viable before they’re uploaded to the main Blockchain. Naturally, this involves considerable trust and tech stability.
Tied to this is the risk of fraud, which remains a prime concern. As convoluted as the Blockchain is, it’s still near-impossible to hack, which lends it considerable integrity. Moving transactions outside of that protected space naturally opens other transactions up to greater vulnerability and risk.
Additionally, price fluctuations are potentially problematic. As Bitcoin can fluctuate on a near-daily basis, it can mean that the buyer or seller alike can find themselves out of pocket once the transaction is uploaded to the Blockchain and the transaction is finally resolved.
Of course, none of these problems are insurmountable. The Bitcoin community is full of creative thinkers and keen tech enthusiasts, and solutions will likely emerge sooner than expected. As with any new or experimental technology, there are roadblocks to be expected; but this “Lightning Coin” approach to Bitcoin may still yield impressive results in the near future. At BTC Markets, we look forward to seeing how the technology and conversation continue to evolve.
Learn more about Lightning Bitcoin with BTC Markets
The team here at BTC Markets is here to help you get to grips with the world of Blockchain, Bitcoin, cryptocurrency and much more. So if you have more questions about “What is the Lightning Network?” or “How can I start investing?” or want to keep up to date with Lightning Network news, BTC Markets is here for you.
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