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Lightning speeddial5/20/2023 ![]() The importance of the Lightning Networkīy creating a channel with someone, you can literally make thousands of transactions-all at faster speeds and lower costs. It’s kind of like adding someone to the speed-dial on your phone-it’s best for people and shops that you constantly transact with. ![]() They can keep doing this as long as they please but as soon as they decide they’re done making transactions, the channel will be published and the main chain will be updated. ![]() If 2 BTC was sent to Bill, Dave would then have 4 and Bill would have 8. They can now send as many transactions to each other as they want, so long as the transaction doesn’t exceed the balance put in. This means that the total balance of the channel would then be 12 BTC.Īs soon as that channel is created, the highway is open. To create a channel, they’d both have to put BTC in to fund it. To give you a better understanding of how the Bitcoin Lightning Network operates, let’s put it into a real-world scenario: Dave wants to send Bitcoin to Bill using the Lightning Network. To maintain security on these channels, the network uses something called Hash Timelock Contracts (HTLCs), which allows users to set conditions to be put in place to avoid scams. It’s kind of like having your own personal highway for faster and cheaper BTC transactions. This means that Lightning is a second layer that’s built on top of the BTC blockchain-it has its own nodes and software that communicate with the main blockchain through mini-ledgers called channels.īy building on top of the current chain and using smart contracts, the Lightning Network can speed up transactions and reduce associated fees. The Bitcoin Lightning Network is a layer two or off-chain solution to the scalability problem. One of the more prominent solutions was to add the Bitcoin Lightning Network. Luckily, people are aware of the problem and many developers have worked hard to come up with a solution. Although that doesn’t seem too bad, issues arise when many people try to use the network at the same time-transactions can take longer and become more expensive. Currently, on the Bitcoin blockchain, a block is created around every 10 minutes. The big one that always comes up is scalability. Over the past 12 years, we’ve seen what areas of Bitcoin (BTC) need improvement.
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