Bitcoin Lightning Network – A Detailed Guide

    Bitcoin Lightning Network

    It has been 12 years since bitcoin was launched, now it has become the most favored Cryptocurrency globally. Bitcoin, along with itself, has brought various real-time uses that we discovered later. The most secure payment system, affordable and quick remittances are all the unique features of Bitcoin. At present, blocks on the Bitcoin blockchain can, unfortunately, hold a limited number of exchanges, as in every 10 minutes, it creates around a single block. Thus, it may not appear to be a long time; however, whenever numerous users are attempting to utilize the network simultaneously, the transactions might take a much longer time and can turn out to be more costly.

    Perhaps, most of the users are already aware of such a situation, and even numerous developers are working to tackle this situation. Therefore, the Bitcoin Lightning Network is the result of all this they have found.

    This guide will help you know what the bitcoin lightning network is and how it works. Along with this, you would get a more transparent state of the lightning network’s benefits and disadvantages, including its future in Cryptocurrency.

    What is the Bitcoin Lightning Network?

    The developers introduced the Lightning Network as a subsequent layer to the blockchain of bitcoin. The lightning system permits off-chain transactions, for example, the transaction between the third parties not on the blockchain network. Also, when multiple payment channels are made by Bitcoin users and make the second layer. Thus, the Lightning Network layer is another method of the transaction between two parties to send or receive the payments in the form of Bitcoin. By managing the transactions out from the blockchain mainnet layer, this specific second layer upgrades the versatility of blockchain applications. Yet, it offers the benefit from the first layer’s decentralized solid security system.

    Moreover, the widespread adoption of Cryptocurrency has become halted by adaptability. Yet, the blockchain network can handle millions to billions of transactions per second (TPS), but only if it’s scaled appropriately. There are minimal transaction charges in the Lightning Network by executing and settling off-chain in such a case. By such means, users can even use bitcoin in new use cases like buying a coffee with crypto with rapid micropayments. Last but not least, it will likewise accelerate the processing time and minimize the energy costs of Bitcoin’s blockchain.

    On the contrary, the bitcoin lightning system still can’t hold up to the problems, and it further brings some new issues like malicious attacks and fewer routing fees. Such as, you would need a small amount to open the payment channel.

    Understanding the Lightning Network

    Thaddeus Dryja and Joseph Poon proposed the Lightning Network in 2015. The previous discussion related to payment channels by Satoshi Nakamoto was their base of research work. Nakamoto portrayed payment channels to college developer Mike Hearn, who distributed the discussions in 2013. Mainly, the lighting network was introduced to solve bitcoin’s slow transaction speed. Thus, it was an aim to make this system capable of turning into a mode for everyday transactions. Therefore, bitcoin could quickly achieve countless transactions per second. Similar to credit cards or the online payments network.

    Due to the decentralization nature that demands agreement from all nodes included in the network, bitcoin is weighed down with such issues in its present status. For instance, with the multiplication of the bitcoin network, there would be an increase in the expenses of approving and storing transactions. Moreover, the increment in transaction numbers likewise requires drastic improvement in the computer’s processing power. PCs that are needed to execute exchanges, including bitcoin. Hence, to compute the information, there would be the requirement of enormous energy to maintain the bitcoin for everyday conversations, which is highly costly.

    However, with the help of a lightning network, this would be a perfect solution to tackle the scaling issue by making a second layer on bitcoin’s main blockchain. The lightning or second layer will include the numerous payment channels within the two parties or bitcoin clients. A lightning network channel is an exchange component between two gatherings. Utilizing media, the gatherings can make or get installments from one another.

    In the end, as compared to the standard transaction on the blockchain, these new transactions will be processed differently. Whenever two users open or close the payment channel, it will only update the main blockchain.

    Therefore, with such a case, two parties can transfer the payment to each other endlessly, even without informing the main blockchain in the activity. This method will automatically allow rapid transaction speed, as all the transactions don’t need approval from all nodes in the blockchain.

    How the Lightning Network Works?

    With the help of a lightning network, two parties can have peer-to-peer payment gateways, such as between a customer and a café. When the connection is set up, the users can send or receive unlimited transaction amounts with the channel. In simple terms, it goes about as its little ledger for users to pay for any payment for more miniature goods or services, for example, buying a coffee without influencing the Bitcoin network.

    The user or payer should lock a specific measure of Bitcoin into the network to make a payment channel. When the Bitcoin is closed, the beneficiary can receive the amount of it as they see fit. To keep the channel open, they can decide to add Bitcoin reliably. With the utilization of the Lightning Network channel, the two parties can make transactions with one another. When differentiated to standard exchanges on the Bitcoin blockchain, a few exchanges are taken care of in an unexpected way. Such as the channel opened by two users could only be updated on the main blockchain.

    Without informing the main blockchain, the two parties or bitcoin users can move assets between themselves endlessly. This technique generously accelerates the transaction time. Lightning Network hubs can route transactions. It is usually framed by joining individual payment channels within the concerned parties. In this way, the Lightning Network is the only reliable solution for numerous payment systems to be linked together.

    In the long run, after the completion of the transaction by the two parties, they can close the channel. All of the channel’s data is then merged into one transaction. This consolidation ensures that all other small transactions spam the network at once and simplify them into a sole transaction that needs less time and effort to approve.

    Such as, if a person named Tony goes to purchase everyday items at a nearby shopping mall and he wants to pay in Bitcoin. He could decide to make a small payment for everything, yet this small transaction can take a long time to get verified due to Bitcoin’s scalability issues. Therefore, Tony also has to pay an extra network fee apart from the rest, just for a small transaction at a cafe.

    Starting with Lightning Network

    Starting with Lightning Network is quite a streamlined process. If you want to make transactions with the Lightning Network first you’ll have to send some Bitcoins, for instance, from your Coinbase account to a Lightning compatible wallet. There are handfuls to select from. However, some famous choices include “custodial” and “non-custodial” wallets.

    1. Custodial wallets

    For Custodial wallets, you can go with Blue Wallet, and Wallet of Satoshi. These are some reliable and secure Lightning network wallers for beginners especially. These wallets have a simple process to send and receive the crypto by dealing with your private keys. However, in case you lose or forget your password, you can recover it easily.

    2. Non-custodial wallets

    In non-custodial walters the options are Muun, Breez, Phoenix, and Zap. You can control these wallets, and they are quite famous in traders’ fields. Except for you, no one could have the private key to access the wallet. However, with these wallets, you can even lose your funds if you lose or forget the wallet’s password. Thus, make sure to create a backup of your wallet or save its password.

    Pros and Cons of Lightning Network

    To better understand the Lightning Network system of Bitcoin, let’s have a look at the benefits and drawbacks that come along with it.

    Pros of Lightning Network:

    • Undoubtedly, the Lightning Network offers quicker and less expensive transactions and permits small payments in a way that was not possible before. Earlier, the users had to pay high network fees even for simple transactions. Moreover, those streamlined transactions also take too much time to get validated without it. These long waiting times are usually due to the winners, as they decide to approve more significant transactions and acquire bigger rewards for doing so.
    • The bitcoin blockchain is linked with the Lightning Network, and it mainly acts as the top layer of it. The connection between both implies that the Lightning Network is getting benefit from the security of Bitcoin’s protocols. Thus, bitcoin users can choose more significant transactions and can also switch to the Lightning Network’s off-chain for smaller and modest ones. Besides, it also offers private transactions and prevents anyone from taking a peek at any user transaction.
    • Regarding the Lightning network, now crypto lovers are also looking to test the atomic swaps. It is mainly the method of swapping one Cryptocurrency with another without utilizing a third party. The atomic swaps are more helpful as compared to exchange, as they offer to swap without any wallet transfer.

    Disadvantages of Lightning Network

    • The main drawback of Lightning Network is, users can’t use it without a wallet compatible with Lightning Network. However, anyone can easily find the required wallet, and users can fund it from a traditional Bitcoin wallet. However, the transaction between the wallet initially may cost you, and the user has to give up some bitcoins to associate with the protocol. Whenever the lightning wallet receives the fund, one could secure their Bitcoin to make a payment channel.
    • The process of sending Bitcoin between wallets could be hectic and costly, especially for new users. Besides, some wallets support both on- and off-chain payments without any fees.
    • The offline transaction scam is probably the biggest negative of the Lightning Network. If one party is offline and another one decides to close the payment gateways, there is a high chance that the former user can steal the assets. It would be already late when the other party comes online. Therefore, the scammer would remain offline without any contact with them.
    • There could be some bugs that could affect the Lightning Network, for example, stuck payments i.e. outgoing transactions without verification. However, users will get a refund from the Bitcoin network. However, it would probably take days to obtain because the stuck transactions don’t have foremost priority compared to legitimate transactions.

    What is the Future of Lightning Network?

    Every new technology initially has some drawbacks, yet developers usually fix them with time. Lightning Network has no exceptions. Luckily for the Lightning Network, usability is on the rise. As of now, there is more than $110 million in Bitcoin locked in the Lightning Network, according to the DappRadar report. Probably there could be users who are mostly doing small transactions for everyday services and products.

    The Lightning Network wallets are vital for network usage. As there might be a difference between the Bitcoin mainnet and the Lightning Network, users require an alternate wallet to make payment channels. However, for traders, there are optimized Bitcoin wallets that they can use.

    There would be more wallet development with the continued rise in the Lightning Network adoption. Devoted clients can likewise turn into a node, which could also make the Network transfer rapidly.

    It’s also essential that Lightning’s advancement has extended to fill in as a layer-two solution for different projects. However, the support is also started by the cryptocurrency exchanges, which allow numerous traders to use the Lightning Network. The Lightning Network exchanges permit the dealers to pull out small amounts of Bitcoin efficiently and immediately. Simply put, users could suffer from tremendous transaction fees and an increase in wait time without the Lightning Network.

    Moreover, there are high chances of introducing secure third-party services for various particular nodes to the Lightning Network. If some nodes stay offline, the transaction gateway will remain open for offline transactions. A specific participant can pay a small watch-over fee to get signifiers to the transaction channels rather than leaving their channel unattended. The signifiers are utilized by watch over to examine the user’s channel among the entirety of the rest and watch out for it.

    On the off chance, if any malicious activity is detected, such as another party endeavoring to close the payment gateway, it will consequently freeze the payment or refund the user. Therefore, the other party will also get a penalty by watch over, and their funds will be removed from the channel.


    In a nutshell, the Lightning Network has become a rising concept with significant potential in the cryptocurrency market. It would ultimately alter Bitcoin’s default blockchain for transaction gateways. No doubt that the network is not responsible for Bitcoin’s issues. However, with continuous improvement and evolution in the network, new potential problems would arise inside the cryptocurrency environment. However, Lightning Network might solve some significant issues related to transaction gateways for all users in the future. The new technology and research in particular fields will even have more potential for Cryptocurrency.