LIGHTNING 🌩 NETWORK
Bitcoin is getting adopted by so many, and when Bitcoin becomes adopted by a lot more people and a couple of million people decide to start using the network daily, the blockchain which serves as Bitcoin's "base layer," will be unable to support enough daily transactions for billions of users.
The transaction queue and fee rate would quickly increase as users compete to have their transactions processed and that would be a huge challenge for Bitcoin. This could easily be solved using a centralized system approach but that would be against what Bitcoin stands for as transactions could be censored and privacy compromised. To help solve this problem, a system called the lightning network was developed and deployed on top of the Bitcoin Blockchain as a second layer to allow the network to expand to handle the anticipated exponential growth in transaction quantities.
The lightning network is a special second layer (layer 2) of the Bitcoin blockchain that allows faster payments using an "off-chain protocol" and additional functionality to Bitcoin. It is a solution to scaling that enables participants to speed up Bitcoin transactions to attain an almost instant speed at a very little cost and can make very small Bitcoin payments while still retaining many interesting qualities of Bitcoin, such as non-custodial transactions and settlement, at very little transaction fees compared to onchain transactions.
The Lightning Network is a network of payment channels between Lightning nodes. By routing payments through these Lightning nodes and only settling (channel closes) to the Bitcoin blockchain, Lightning enables many more Bitcoin transactions per second at a far cheaper cost than doing standard on-chain Bitcoin transactions. Picture this: you enter a store or mall to purchase some items like shoes, bags, caps, and belts. You then proceed to pay for the items one by one instead of calculating the items together and paying for them once. By paying once, you would save a lot from the transaction and tax charged by the store compared to if you were paying for each item separately. So, the lightning network works similarly to paying for the items once. One trade-off required with Lightning Network participants is that they must be online for transactions.
In practice, if you are planning to use Bitcoin for "day-to-day" spending, then definitely consider using Lightning payments rather than onchain transactions. This will result in a much smoother experience for you. For larger value transactions (over a few thousand dollars) we recommend on-chain payments.
Lightning node and how to set up a lightning Node:
A Lightning node is a piece of software that links to the main blockchain network and the Lightning Network.
A Lightning Network node has 2 responsibilities:
Monitor the first layer of the Bitcoin blockchain.
Interact with other Lightning Network nodes to transact money.
Running your own Lightning node is more for Bitcoin professionals or super users since it requires a bit of technical capability and learning. To run your own Lightning node, you will need to set up your own channels and manage liquidity and backups which will take further research and work.
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