6 min readMar 28, 2022

Key Points:

· About Lightning Network

· Layer-Two Solutions

· Lightning Network’s features and mode of operation

· Current use cases and implementation of the Lightning Network

You may have had no knowledge about the Lightning Network before! However, there’s a big chance that you have heard of Bitcoin. This is because Bitcoin remains the most popular and valuable blockchain and cryptocurrency.

Its popularity comes with one downside. It is slow and congested. The Lightning Network attempts to solve this by moving transactions off-chain.

Created in 2008 by Satoshi Nakamoto, Bitcoin’s purpose was to create a secure, decentralized network to empower all and sundry. Before the release of Bitcoin’s whitepaper, global financial systems were centralized. Individual governments can deprive users of access to their assets via central banks. Hence, everyone was at the mercy of the centralized systems.

Bitcoin was created to attain a decentralized world, for the people, and by the people, fostering true democracy. To make it a reality, Satoshi Nakamoto created the Proof-Of-Work (PoW) validation mechanism; this makes it possible to validate all transactions on the network, to avoid fraudulent transactions or double-spending. As a result, the Bitcoin network is secure, all transactions are publicly verifiable, and no one can spend the same token twice.

Sounds good, doesn’t it?

It is definitely pleasing to hear that you are no longer under the prying eyes of the government; you can operate your finances without fear of being defrauded, monitored, or limited.

Many people feel the same way, and as a result, millions of users flocked to the Bitcoin network to enjoy decentralization, anonymity, and security. Unfortunately, as a result, the Bitcoin network became overloaded. Initially, it only takes a few seconds to validate transactions on the Bitcoin Network, but transaction times and costs increased exponentially; transactions took 10 minutes to validate.

Imagine if 100 people shopping at a store wanted to make payment via Bitcoin. It would be more than frustrating to wait for over 10 minutes to validate each transaction while paying high transaction fees.

Unfortunately, this was the situation with Bitcoin. Security and decentralization were maintained, but the voluminous transactions on the network made it impossible to achieve scalability.

What is A Layer-Two Solution in Lightning Network?

Bitcoin and Ethereum are examples of Layer-1 blockchains; they are regarded as Layer-1 blockchains because they do not rely on a secondary infrastructure. They can log and confirm transactions independently, validating transactions with several consensus mechanisms. However, Layer-1 blockchains commonly suffer from poor scalability, leading to delayed and expensive transactions.

Layer-two networks are created to solve the scalability problems with Layer-one blockchains. Layer-two networks don’t validate transactions independently; instead, they depend on the main chain for security and consensus.

Lightning Network — Bitcoin’s Layer-Two Solution

As fast as lightning!

From its name, it is evident that the lightning network offers speed. It was created in 2015 to solve scalability problems with the Bitcoin network, aiming to validate lots of transactions in record time. Furthermore, it also aims to facilitate cheaper transactions. Expensive transaction fees are caused by lengthy waiting times, causing a surge in demand for miners to validate transactions. In order words, by enabling fast transactions, the Lightning Network significantly reduces the fees required by miners to validate transactions.

How Exactly Does the Lightning Network Work?

Lightning Network eliminates the need for a user to directly interact with Bitcoin’s network when making a transaction. Instead, it sets up smart contracts to create an off-chain payment gateway to allow instantaneous transactions.

The lightning network only records the ‘open’ and ‘close’ of the transaction on Bitcoin’s blockchain, reducing a considerable amount of data from logging the blockchain; as a result, Bitcoin’s network moves faster.

For example: if you visit a store to purchase items to pay via Lightning Network, you will open a payment channel via a smart contract. Immediately the payment channel is opened, it is logged on the main blockchain, while other transactions are logged on the side-chain (Lightning Network). So, you could make ten payments to the store, and they would receive immediately, rather than waiting for a long time to validate all ten payments.

Once all transactions are completed, all parties can close the payment channel, and the final balance will be recorded on the primary blockchain. Both users are required to sign off on the opening and closing of the Payment Channel (Multi-Sig); without that, the transactions on the payment channel will not happen.

Features of Lightning Network

· Privacy: Only the opening and closing transactions are publicly logged on the blockchain; as a result, the details of payment sequences made in the payment channel remain privileged. Node operators can validate transactions within the payment channels without seeing the source or destination of the funds.

· Security: Lightning Network is secured with timelocks to preset how long a payment channel can be open; hence, if one person leaves, the balances will not be locked, but the transaction will automatically close at the time limit transfer funds to the other party. Lightning network is also secured with an asymmetric revocation commitment that allows a user to recall his coins if the other party tries to cheat.

· Minuscule Transactions: The lightning network allows transactions of granular amounts, transactions that could be smaller than one Satoshi.

· Cheap and Fast Transactions: Bitcoin has an average transaction speed of 10 transactions per second; however, the lightning network can complete millions of transactions in seconds, charging infinitesimal fees.

Use Cases and Implementation of the Lightning Network

· Twitter Tips: Ex-CEO of Twitter, Jack Dorsey, allowed users to send and receive bitcoin tips of any amount via the Lightning network. Hence, Twitter users can send and receive bitcoin payments immediately without any charges.

· Substack: The US-based newsletter platform accepts Bitcoin payment for its content creators who publish cryptocurrency content.

· El-Salvador: Being the first country to make Bitcoin its legal tender, El Salvador requires a very swift Bitcoin network if it is to be successfully used for day-to-day transactions. Hence, The Salvadoran Government created the Chivo wallet for fast and cheap transactions powered by the Lightning network.

· Bitfinex: Bitfinex uses the Lightning network to process deposits and withdrawals to facilitate a seamless experience for users.

· Other Networks: Lightning Network’s technology is being adapted to enable scalability in other cryptocurrencies like Litecoin (LTC), Ripple (XRP), Stellar (XLM), and more tokens.

Drawbacks of the Lightning Network

· Because the payment channels need to remain connected to the blockchain and internet, cold wallets cannot utilize them.

· All channels must be closed before the recipient can spend their funds.

· It may not be suitable for making transactions involving huge funds.

· The network has a history of being attacked during its early years; however, it has become increasingly reliable with more solutions.

Closing Thoughts

Bitcoin is seen as a store of value more than a means of exchange; however, Satoshi Nakamoto’s dream was to see Bitcoin used for day-to-day payments.

The adoption of the lightning network has provided scalability solutions for Bitcoin, making it possible to handle smaller levels of transactions. As a result, Bitcoin has become a secure medium of exchange, fostering fast and cheap transactions.

Cwallet proudly supports Lightning Network providing you with secure and superfast transactions.

Scalability solutions aren’t just limited to Bitcoin’s network; other ecosystems, like Ethereum, also have developers working on projects that can offer cheap and fast transactions.

The future seems bright for cryptocurrency, and only time will tell what it holds!




https://cwallet.com is the combined custodial & non-custodial crypto wallet. Manage and trade 800+ crypto and in one place using multiple tools and bots.