Lightning Network is a Layer2 network designed to run on top of Bitcoin and enable faster, cheaper, and more secure transactions over this network.
Lightning Network thus becomes a vehicle capable of extending Bitcoin’s capabilities, significantly transforming this network into a global payment system accessible to all.
This protocol began with Joseph Poon and Thaddeus Dryja, two well-known Bitcoin developers. Since then, the development of Lightning Network has been in the hands of several companies and their communities, such as Blockstream, Lightning Labs, and ACINQ. Their mission is to drive development and solutions built on top of the protocol. However, Lightning Network is an open and decentralized protocol. Bitcoin’s Lightning Network white paper is available on its main website.
What is the Lightning Network?
One of the big problems with Bitcoin is its scalability. The Bitcoin network can only process 7 to 8 transactions per second, making it especially slow compared to other networks. For example, Solana. This problem detracted from Bitcoin’s ability to serve as a fast-running global payment system. It also made transactions within the network incredibly costly, especially when network usage was exceptionally high.
Solving this problem became a priority issue for the Bitcoin community. It originated what many know as the “Blocksize War,” a community confrontation within Bitcoin. This internal war broke by some people’s attempts to change the Bitcoin protocol to make it scale. Attempts focused on expanding the Bitcoin block size, which gave rise to different forks: Bitcoin XT, Bitcoin Cash, and even BSV itself.
A network with more than 15,000 nodes
However, the leading Bitcoin devs prevented these changes from being made. Their solution to the problem was the creation of a Layer2 that would become the Lightning Network, leaving the Bitcoin protocol without significant modifications. Some projects that were born as forks to solve Bitcoin’s scalability ended up abandoned, with little use, or with considerable centralization. In the face of such projects, Bitcoin has maintained its cohesion and strengthened itself, and its solution has demonstrated its enormous capacity. Lightning Network has become a network with over 15,000 nodes, over 75 thousand payment channels, and an operating capacity of more than 5000 BTC. Moreover, everything points to the fact that the levels will continue to increase over time due to the enormous growth that bitcoin has experienced and the growth expected due to the new network developments.
Faster and more secure payments
Lightning Network has earned its prominent place thanks to its fast payments. While usually, a Bitcoin payment takes about 10-15 minutes, on Lightning Network, the time is less than 5 seconds. Thus, sending money from point A to point B with Lightning Network is done quickly, at a meager cost (less than a penny on the dollar). This speed has attracted the attention of many companies wishing to use cryptocurrencies (bitcoin, above all), enjoying fast and affordable payments.
This circumstance has led several companies to set up payment nodes and channels to use the network in a decentralized way. Companies like Block recently added support for Lightning Network in its Cash App. Other payment gateways, such as Bitpay, OpenNodes, Mynt, Coinbase, and Coingate, have also done the same.
100,000 transactions per second
Being part of a network with natural and available operational capacity like Lightning Network is a huge opportunity. The network can process nearly 100,000 transactions per second while offering guarantees against losing funds, fraud, and other malicious activities. Other alternatives are less scalable, more secure, and decentralized than this solution, making the Lightning Network a perfect payment option.
In addition, the software for using Lightning Network has also evolved. Initially, using the network was complex and required some knowledge. Still, now it is as simple as downloading a wallet, converting our on-chain BTC into satoshis within Lightning Network, and using the network. Developers simplified this process so that in less than 10 minutes, you can enjoy your LN wallet without complications.
DeFi on Bitcoin
However, Lightning Network’s development aims at a particular point: building a Bitcoin-owned DeFi ecosystem. DeFi applications on Bitcoin deploy on Ethereum or Bitcoin’s Layer2, such as RSK and Stacks. But RSK and Stacks, while they have communities that rely on their services, are not entirely decentralized solutions.
On this point, Taro Protocol, Lightning Network’s new free development, will allow LN to create decentralized applications centered on DeFi over BTC without third parties. Designing stablecoins, tokens, and applications using these structures directly on LN will be possible. This way, the Bitcoin Network and LN duo amplify its reach and maintain technological cohesion. Of course, this does not mean that third parties can leverage and extend the protocol.
Taro Protocol has been under construction since 2022, and the protocol will be complete by the end of 2023. With the launch of Taro, any company can take the protocol and create Taro Assets under well-defined rules. For example, it will allow the creation of dollar-anchored stablecoins backed directly by bitcoin without leaving Bitcoin and its network. It will also enable the creation of proprietary tokens that use the Bitcoin network for security. All these characteristics will have the accountability and transparency that have always characterized the Bitcoin network. Undoubtedly, the future of Bitcoin passes through the Lightning Network.