One of the current issues facing Bitcoin in the cryptocurrency universe is the speed of transactions. As more people purchase Bitcoin and try to use it, sending Bitcoin from one wallet to another has become terribly slow, sometimes taking hours or a day. This has caused an increase in network transaction fees – an advantage Bitcoin used to have over transferring regular(fiat) money.
At the moment, Bitcoin currently processes 3 transactions per second. When compared to Visa’s ability to process 3600 transactions within the same time, it’s clear that Bitcoin needs to step up. One method to increase Bitcoin’s capacity is to increase the size of its blocks. This is what has happened in many Bitcoin forks such as Bitcoin Cash.
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Another way to increase the capacity of Bitcoin is to create a layer on top of the blockchain. A group of developers has been working on this since 2015 and have called it The Lighting Network. Last week, they sent two transactions over the blockchain using three separate pieces of software. The network promises millions to billions of transactions per second.
How does Lighting Network Work?
Lighting Network uses an aspect of blockchain technology called “hashed timelocked contracts”. It is an escrow service that releases funds from a bitcoin address only if certain conditions are met. To make a payment on the Lighting network, both parties involved in a transaction will deposit Bitcoin in a “channel” and can debit or credit as necessary. These microtransactions(debits and credits) occur off the blockchain and reduces the need for all the multiple transactions and confirmations that happen on Bitcoin’s current blockchain setup. It however still relies on Bitcoin’s security ensuring transactions are still secure.
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Criticisms of Lighting Network
The alternative to lighting network’s methodology is to increase the size of blocks on the Bitcoin blockchain. Bitcoin Cash increased the block size to 8 megabytes – meaning each block can contain 8 times the number of transactions. Critics of the lighting network say larger block sizes are a better method of speeding up blockchain because the network remains decentralised. The worry is technology like lighting network will centralise Bitcoin transactions and a small number of people will be in control of most transactions.
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For the lighting network to become adopted as a new layer on top of Bitcoin, many stakeholders(miners and exchanges) must be involved in implementing and developing it. Blockchain technology relies on mass adoption and a fast rate of adoption for it to be used.
You can read more about Lighting Network here.