The Lightning Network is a payment protocol that sits above the main Bitcoin blockchain enabling faster and cheaper payments. Lightning transactions are secured by the main Bitcoin blockchain but need not be publicly confirmed by the blockchain. How does that work, exactly? In this article, we break it down.
Bitcoin was designed to serve as digital cash, allowing individuals to instantly and cheaply transfer currency to one another. However, as it has grown ever more popular its infrastructure has struggled to cope with demand, making bitcoin payments slow and expensive.
The Lightning Network offers a solution, counteracting inefficiencies associated with Bitcoin’s proof of work system and allowing bitcoin to be transferred at a microscopic fraction of the cost of transacting on the main Bitcoin blockchain. Lightning transactions are also instant, instead of taking upwards of ten minutes on-chain.
A brief proof of work refresher
Proof of work is a consensus mechanism that enables all network users to know a crypto transaction is valid and prevents the same money from being spent twice, but this process is slow and expensive.
All bitcoin transactions are stored in a public ledger called a blockchain. Individual transaction records are known as ‘blocks’, and each of these is registered on the blockchain through the use of cryptography. Cryptographic records are secured through the use of mathematical equations solved by powerful computers.
On a proof of work system, these computers – known as ‘miners’ – compete to solve these equations, thereby creating a new block and earning a miner’s reward.
