KP @SovCryptoBlog Cryptocurrency analyst and writer A Software Engineering major turned Product Manager at Twitch. Passionate cryptocurrency analyst and writer. Follow on Twitter

Lightning Labs is a private company building Bitcoin's Lightning Network. On March 15th, the company announced the launch of a beta version of the network on Bitcoin's production blockchain (popularly referred to as the "mainnet"). Along with this launch, the company also raised $2.5 million in a new round of funding with investors including high profile Silicon Valley executives from companies like Square (Jacqueline Reses and Jack Dorsey), Twitter (Jack Dorsey), Robinhood (Vlad Tenev), and PayPal (David Sacks). This beta launch was well received by Bitcoin's community. Bitcoin's recent blockchain congestion and competition from Bitcoin Cash has created significant anticipation for an off-chain scaling solution (e.g. the Lightning Network) among Bitcoin's fans. While Bitcoin Cash scaled its transaction throughput by increasing block sizes, Bitcoin is adamant that block sizes remain the same and scaling can only be done off-chain. However, is the Lightning Network as great as its sales pitch? The idea is ambitious but the devil is in the details. Lightning has an unsolved problem that makes it a centralized payment platform. This defeats the purpose of using Bitcoin in the first place. Is the Lightning Network a viable scaling solution for Bitcoin if it's centralized? Many disagree.

What is the Lightning Network? Lightning aims to greatly increase the total number of transactions Bitcoin can handle at a time. It's a second-layer technology, meaning that the system is connected with, but not part of the blockchain. Lightning uses a theoretical concepted called "state channels" to power off-chain transactions. Essentially, two Bitcoin users can both commit some BTC to create a state channel between each other. The commited BTC is locked and cannot be used in an on-chain transaction (transactions on the blockchain) until the channel is closed. While it's open, both users can freely send their commited BTC to each other without affecting the blockchain. On-chain transactions are only created when a channel is opened or closed. When a channel is closed, the magic of cryptography ensures that each user receives the right amount of BTC based on the culmination of all off-chain transactions that occured in the closed state channel. What makes Lightning even more compelling is that if user A is connected to users B and C through two different state channels, users B and C can send each other BTC without any action from A, as long as both state channels have enough commited BTC. Taking this idea further, imagine a network with many state-channel-connected users... a user can send funds to any other user as long as there is a path of state channels that connects them. This effectively creates a secure, decentralized, and highly scalable payments platform on top of Bitcoin... in theory. If this worked, while remaining decentralized, it would be a tremendous victory for Bitcoin in the heated scaling debate that has engulfed both Bitcoin's and Bitcoin Cash's communities. As mentioned before, Bitcoin believes that scaling can only be achieved with second-layer solutions. On the other hand, Bitcoin Cash believes that scaling can only be achieved with on-chain modifications (e.g. increasing block size). This fundamental disagreement has created a debate so intense that Bitcoin split into two blockchains: Bitcoin and Bitcoin Cash.