The blockchain network has been designed in such a way that it allows many other cryptocurrencies to be created in order to fulfill the shortcomings of Bitcoin. Anyone can create their own digital currency to suit their own specific need. One such currency network created by the power of blockchain is Lightning, which aims to cover the biggest issue with Bitcoin, which is transaction speed, by ensuring lightning-fast payments over the Blockchain network.
Lightning is currently in development, with its main goal being to allow for super-fast transactions from one party to another with minimal waiting times. Like other major cryptocurrencies including Bitcoin, Lightning is a decentralized network. This means that no individual or company can gain sole control of the cryptocurrency and the backend networks powering it, which would make it more resilient against cyberattacks and law enforcement authorities. The underlying code of Lightning is open source, which means that anyone can review their code and suggest changes for the betterment of the platform as well as report exploits and patch them at a rapid pace. The open-sourced and community driven nature of Lightning means that anyone and everyone can run their own Lightning node in order to conduct transactions and be a part of the network.
Lightning works over the Bitcoin network. For example, in order to conduct a transaction in Lightning, one needs to create a Bitcoin transaction first in order to fund the Lightning pool, which in turn takes you to another transaction in order to release your funds to the pool. The other party is also present in this pool. This pool helps to conduct fast transactions over two or more parties. The transactions in this pool is also reported as normal to the Bitcoin blockchain. The advantage of this shared account is that it allows for multi-authentication while conducting a transaction as well as it allows for the rapid clearing of pending transactions on the Bitcoin network without any wait times.
Lightning utilizes the Smart Contracts feature of the blockchain in order to create a secured network between parties for transactions. It also works on the principle of ‘off-chain’ transactions, which means that the currency transacted is always held in a multi-signature address as long as the transaction pool stays open. The final summation of transactions is only added to the blockchain when the pool is closed by all the parties. The word ‘off-chain’ is used for this process as the intermediate transactions done between parties are not reflected on the blockchain, but only the final summarized transaction is displayed on the blockchain.
Lightning also builds on the secure aspect of its service, and it uses a system called CheckLockTimeVerify or CLTV to verify transactions and block fraudulent ones. The system works in the Lightning pool shared by parties and is not dependent on the fact that both parties need constant internet connection. CLTV checks all transaction details and asks for the parties to check once in a while under 24 hours to ensure the integrity of all transactions. If a cheater gets caught, then CLTV takes away all his funds and gives it to the affected party. CLTV watch duties can also be outsourced to third parties, which can be both trusted and untrusted. Even the CLTV timeout is customizable, but the creators of the network prefer them to be low as pools with higher CLTV timeouts would not be preferred by people to transact in.
Another way the Lightning networks to prevent fraudulent transactions from happening in its network is before opening a pool, both the parties first agree on a fixed value, called a reserve value. The total balance in the pool cannot drop below this fixed value and transactions will be voided if it tries to breach this reserve value. Along with the CLTV timeouts technology, it becomes extremely hard to game the system without the other party getting an idea of a cheat’s true intentions. Even if one of the parties have bad internet or are suffering DDoS attacks, the funds would be kept safe in the pool and would not be transferred to the other party without prior and explicit approval via the CLTV timeout. Any form of instability acts as a deterrent to the fraudster, thus minimizing fraudulent activities to a minimum and to ensure the safety of all parties as well as their assets.
Another big advantage of Lightning over the traditional Bitcoin system is that the transaction fees incurred on Lightning are really low and are proportional to the payment. There is no minimum limit on the amount of payment that can be sent. The creators of Lightning have said that the network accounts for transactions ranging to even thousandths of satoshis. This means that Lightning is suitable for those who want instant transactions and cannot afford to pay high fees.
While the open source nature of Lightning allows anyone to create a node, they won’t be able to charge high fees from it as the abundance of other nodes would make the rates competitive as well as keep it low for the benefit of all. Even the exchanges wishing to host the Lightning network will have an opportunity to decide and then implement the software in their systems. The creators have given a brief example of the type of software implementation. The creators believe that the cost-less and the instant nature of Lightning will make arbitrages between exchanges to be low and as such would lead to more consistent pricing across different exchanges around the world. The network does not have any requirements to host it, so even a layman can implement the network very easily. The creators also say that one does not need to know about cryptocurrency mining in order to run the network.
The Lightning network is also extremely lightweight, which means any computing device, be it a computer or even a mobile device can run a node. 100 MB of space can store more than 1 million nodes, and the creators are already planning to make it even more efficient with the help of the community. Also keeping the lightweight nature of the network in mind, the creators have also implemented a way in which if a device connects to the Lightning network after being disconnected for a long time, they would just need to sync the newer events that occurred prior to their reconnection. They would not need to sync the whole network again, which would lead to significant data and storage savings for the end users. While the feature is not currently implemented yet, the creators are planning to implement it by creating a unique protocol for it in the near future.
Lastly, the creators of Lightning have also implemented a way to open and close pools automatically. The tool, called AutoPilot, creates pools automatically between parties depending on the network. It also ensures that the transactions do not fall below the reserve price set as well as checks the reliability of the network on both ends before allowing large transactions to pass through the Lightning network. It also opens multiple channels for a single transaction to ensure redundancy as well as to aid the parties transact in a hassle-free manner without any glitches or errors.
Overall, the Lightning network aims to revolutionize the transaction system in the Bitcoin network, which is currently facing issues in the form of long wait periods for transactions as well as high transaction fees. It also aims to make cryptocurrencies and the Blockchain network secure for all users, by minimizing frauds and keeping cheats at bay. Also, the open source nature of the cryptocurrency makes it a project which is for the community and is made by the community in order to serve the community as well as the public well. It also keeps it safe from overreaching control as well as protects it from abuse and shutdown due to hacks or attacks by law enforcement agencies. Overall, the Lightning network is a step in the right direction. While the network only works on Bitcoin for now, the creators have plans to extend the network for other currencies too.