The Lightning Network is an off-chain scaling solution designed to help Bitcoin achieve the scaling needed to more closely compete with traditional currencies while maintaining the security and censorship resistance of blockchain technology. In the year since its launch, the Lightning Network has seen staggering growth and adoption — and is now accepted by hundreds of merchants worldwide.

Since the early days of cryptocurrencies, developers, users, and the media alike predicted a time when major blockchains would begin to hit a wall with their capacity limit — forcing transaction fees to rocket and extreme delays in confirmation times. For Bitcoin (BTC), this wall was reached in late 2017, when trade volume witnessed an extraordinary spike, causing an extreme transaction backlog as the number of transactions pushed to the network exceeded the number that could be processed within each 1Mb block.

During this time, the Bitcoin blockchain was stressed to its limits, hiking transaction fees up to over $35 while leaving low fee transactions in potential limbo as they were outcompeted for block space by high fee transactions.

This was initially addressed through the implementation of the Segregated Witness (SegWit) soft-fork, which increased the number of transactions that can fit in a block — hence the maximum throughput of the Bitcoin blockchain. However, while SegWit did relieve some of the burdens, if Bitcoin is to ever to become a fully-fledged alternative to VISA, then far more gains than what SegWit made possible will be needed.

The Lightning Network in a Flash

In order to better address this limitation, blockchain development groups began experimenting with second-layer scaling solutions with the goal of dramatically increasing the bandwidth of the Bitcoin blockchain.

One of these solutions is Lightning, an off-chain solution that allows two parties to set up payments channels between one another, separate from the Bitcoin blockchain. These payment channels allow participants to send transactions between one another nearly instantly, and with much lower fees than would otherwise be possible. The secure payment channels exist separately from the main blockchain, offloading much of the computational burden required to achieve transaction finality by instead adjusting balances on the lightning balance sheet.

The creation of a lightning channel begins with the setup of a 2-of-2 multisignature address. This address must contain a certain amount of funds committed by the participating nodes. The funds stored in the channel are then essentially reallocated to participants through any number of lightning transactions. When either party wants to finalize the state of the lightning channel, they can simply close the channel and the final distribution of funds will be settled on the Bitcoin blockchain — with the correct amount of funds distributed to their rightful owners.

It is not strictly necessary to set up a payment channel directly with the person you are transacting with. Instead, you can send payments to other people through channels you are already connected with, though this may require you have several channels open to successfully route the payment.

[bctt tweet=”As the Lightning Network becomes increasingly large, the number of nodes and channels will increase, and the ability for users to transact with users part of more isolated channels will improve — boosting effectiveness.” username=”beincrypto”]

Lighting Network, Thunderous Growth

The total capacity of the Lightning Network witnessed a staggering jump in Nov 2018, seeing its capacity quadruple in under a month. At the same time, the number of open channels grew significantly — rising from under 9,000 in November to 12,000 a month later.

The sum of the payment channel values sets the limit for the total capacity of the Bitcoin Lightning Network. Right now, this is almost 550 BTC, currently allowing more than $2 million to be transferred between users on the network.

[bctt tweet=”Currently, the ten largest nodes with channels contribute close to half of the total capacity of the Lightning Network. Something will need to change in future to reduce centralization in the network.” username=”beincrypto”]

One Twitter user, recounting his experience with lightning, made a wonderfully succinct example of how the network can be used to save fees and time. @BrickstringTech was able to move $1 worth of BTC around through the Lightning Network for just three satoshis, currently worth 0.01 cents.

Since the launch of the Lightning Network public release in Dec 2017, efforts have been made to improve merchant uptake and usability.

The number of lightning capable wallets has increased significantly, with more than a dozen wallets now allowing you to store your funds in lightning channels. Besides this, other companies, including Casa Inc., have begun developing simple to use hardware nodes — allowing users to send and receive lightning payments with less difficulty.

A brief list of the most popular Bitcoin Lightning Network wallets is outlined below. Give one a try and see how the lightning network can work first hand:

Eclair — an open source Android wallet that can also be used as a regular Bitcoin wallet. Lightning App — created by Lightning Labs, this wallet currently only works with the lightning test net. Works on multiple platforms including desktop and mobile. Thin Wallet — requires you to operate a full node, allowing you to open your own channels, deposit funds and easily send and receive lightning payments. Zap Wallet — available in beta for both desktop and iOS, allowing users to easily to take advantage of the Bitcoin Lightning Network.

Other Blockchains Make Their Move

The success and potential of the Bitcoin Lightning Network have certainly not gone unnoticed by other competing blockchains. Litecoin, for example, has its own Lightning Network currently sitting at just 26 LTC (<$1,000) as of writing. The Litecoin Lightning Network also has just over 100 nodes operating 286 channels. These numbers remain relatively unchanged for the past several months.

Stellar also recently launched announced for the Lightning Network , making it the third major blockchain to adopt the technology.

Other blockchains including Ethereum, Zcash and NEO have added second layer-scaling solutions into their medium-term roadmaps. The majority of these are similar to lightning in many ways, though vary slightly in order to operate effectively with the blockchain they were designed for.

Despite its apparent success, the Bitcoin Lightning Network isn’t without its critics. Many argue that, in time, the Lightning Network will begin to experience growing pains of its own — known as the routing problem — which posits that liquidity will be severely compromised once the network is sufficiently large.

What do you think about second layer scaling solutions? Is Bitcoin’s Lightning Network the best chance for blockchain scaling? Or is there a better alternative in the works? Let us know your thoughts in the comments below!