What is Bitcoin Lightning Network ?
Lightning Network is a layer on the top of the Bitcoin blockchain. Le’me go in more detail.
It is a technology that makes bitcoin work faster, scalable and improve bitcoin in such a way that Bitcoin could handle hundreds or thousands of transactions each second, right now Bitcoin handles about seven transactions per second which is very low compared to Visa and MasterCard who handles hundreds or thousands of transactions per second. Bitcoin lightning network is a proposal which can help in moving from seven transactions per second to hundreds or thousands transactions per second without having any central entity and without losing trust among nodes.
How Lightning Network Works ?
It works by you and me where we can send each other bitcoins on a channel that is off the blockchain so we establish a channel between each other on the blockchain, we start communicating with each other and sending transactions to each other off the blockchain. We can do hundreds or millions of such transactions without broadcasting it back to the blockchain. When we create this channel that is outside the blockchain, we can do any number of transactions without burdening the entire network.
So in their whitepaper who have proposed this idea also in which I can send a transaction to some other person without creating a direct connection to that other person. Le’me explain guys…
Suppose Me and my friend are sending transaction to each other off the blockchain so may be my friend connects to some other person X so in the lightning network, it is possible to send funds from me to person X via my friend. I dont need to have a direct connection to person X. It’s really a good way to propagate funds through the network without establishing many direct connections which also could burden the whole lightning network.
This is comparable with how the internet works today When i send a packet, it can get routed through many different nodes and the nodes dont really care where the packet is coming from and where it’s going, they only care where they should send it next and so the next person may send it somewhere else and then it would finally arrived at final destination. It’s similar to how lightning network work if i have a connection to my friend and my friend has a connection to someone else. I could send funds from me to someone else via my friend, my friend would not even know if the funds are intended to go to person X or if person X is supposed to send person Y. If the person X is recipient then transaction is finished and can be broadcasted to the original blockchain so in this way we can do millions of transactions among each other without burdening the entire network and this could really scale the Bitcoin network.
Can you trust that middle person ?
I want to send some funds from me to my friend Sachin and i want to send those funds to Sachin via middle person Shivam so I have a channel from me to Shivam and then Shivam has a channel to Sachin, now i want to send my funds to Sachin. How can i trust Shivam? May be Shivam takes my funds for himself and doesnot send anything to Sachin so this thing is handled cryptographically and transaction will be refunded back to me if Sachin doesnot recieve my transaction in a certain amount of time.
Problems in Lightning Network ?
The worst thing that could happen to me in this lightning network is that some middle person who is unfaithful would hold my funds for a number of days and so after those days passes, I would get my funds refunded by the protocol of network.
Another problem with this network is that people could open many channels, they could open and close channels instantaneously for burdening the network. In order to open a channel, we need to broadcast this information to the main blockchain and so if some malicious person tries to open and close the hundreds of channels a second, this could really burden the blockchain. They are working in it.
