What is Lightning Network and How It Works

This article is to guide you about How Lightning Network Works to transfer information. This is an innovative system that will allow us to transfer cryptocurrencies within a second. As this technology is new, there are some Pros and Cons of the Lightning Network.

November 14, 2019, | AtoZ MarketsThe Lighting network works as an innovative transaction system comparing to the traditional information transfer. At some point in human civilization, sending a telegram was the most efficient way of communication. To send a telegram, you had to go to your local post office. Then you should fill out a form and pay for your message based on content size. The message then would telegraph to the nearest office for transmitting. A postman would then deliver the telegram to the desired destination. 

The overall system was very costly and time-consuming. Moreover, many people were involved in the process. The same process happens in the current state of the Bitcoin network. 

What is the Lightning Network?

The lighting network is a process to contact anyone with a speed dial. In that sense, you just need to press ‘1’ and your desired phone is already ringing. The idea behind the Bitcoin Lightning Network is something like this. We don’t need to keep a record of all transactions on the blockchain. The Lightning Network adds another layer to the blockchain network.  This system enables extra layers to the payment channels between any two parties. These channels can exist for a long period. As the connection is set up between two people, transactions will be almost instant. Moreover, the fees will be extremely low or even non-existent.

The invention of the Lighting Network

The cryptocurrency community is the biggest user of the Lightning Network. This process was designed especially for Bitcoin. However, the technology is currently developing for additional cryptocurrencies, Like, Litecoin, Zcash, and Ripple. 

The first version of the lightning specification rules has been published. Those specifications are a big step forward for the network.  This can be used by developers of applications and other programmers. However, the network is still very new in the world. There’s no software for the real-life casual users of the network that can make transactions. Moreover, the current implementations of the system are still buggy. 

How Lightning Network Works

The developers are advising the users to stay patient, as the network’s code is very complex. The Lightning Network will need to prove itself to be safe and usable for the Bitcoin community. With many other factors, the experts predict that a fully working Lightning Network can be from within a couple of years. If the network really provides a solution to Bitcoin’s issue, it will be adopted by other cryptocurrencies.

Therefore, there is a possibility to develop a cross-chain atomic swap technology to make a first step towards building a decentralized cryptocurrency exchange.

How Lightning Network Works

Firstly, to make a payment, the payee and the receiver need to create a multi-signature wallet.  With the wallet, they can both access their private keys. Then, say, the make a deposit a certain amount of Bitcoin, 3 BTC each – into that Bitcoin wallet.

#1 Amount of Transaction

From then on, they can make unlimited transactions between them. These transactions are redistributions of the funds that are stored in the shared wallet. If the sender wants to send 1 BTC to the receiver, it will need to transfer the ownership right. Then, the two of them use their private keys to see their updated balance sheet.

The distribution actually happens when the channel gets closed. The algorithm of the most recently signed balance sheet determines who gets what. If both people decide to close the channel after a single transaction, the receiver will receive the payment. The information about the initial and final balance is broadcasted to the Bitcoin blockchain after the completion of a transaction. This is How Lightning Network Works by conducting numerous transactions outside the blockchain and record them as one.

#2 Transfer of Funds

Once the technology is broadly adopted, you won’t require a dedicated channel to transfer funds. Therefore, you will be able to send payment to someone using channels with people connected. The system will find the shortest route automatically. This is how the Lightning Network will give the answer to the never-ending debate about buying anything for Bitcoins. 

The concept of the Lightning Network is a system that will work on top of the blockchain.  Therefore, there is no security behind the process. This system is perfect for small or even microscopic transactions. The larger transfer requires decentralized security besides the original layer.

#3 Cross-chain atomic swaps

Finally, another feature of the Lightning Network is the cross-chain atomic swaps. In this process, the tokens are transferred between different blockchains. It is a way of swapping any cryptocurrency to a different one without any exchanges. Ultimately, this technology is not suitable for centralized cryptocurrency exchanges. However, the test of Bitcoin  The first test of exchanging tokens between the Bitcoin and Litecoin test blockchains has already proved to be a success.

Pros of Lightning Network 

The Lightning Network has made its very first steps; there are some Pros and Cons of Lightning Network. Some time requires to know whether it will actually work or not. If it works, there are some of the most important advantages of the Lightning Network:

#1 Transaction fees

The transactions will take place within the Lightning Network and outside of the blockchain. In that case, you have to pay a little fee only. This is the biggest advantage of the Lightning Network.  This technology will enable Bitcoin to use as a form of payment in shops, cafes and so on.

#2 Atomic swaps 

The first test of cross-blockchain transactions was very exciting. Users can send as much as within the same cryptographic hash function. However, cryptocurrencies r chain without any third party or exchanges. This technology has the revolutionary potential for the future.

#4 Scalability of the Network 

The Lightning Network will take the transactions per second figure of Bitcoin and other cryptocurrencies. Therefore, this process can complete at least 1 million transactions per second.

#4 Transaction speed 

Once the network is live, you won’t have to wait for the conformations of every transaction. The transactions will continue instant despite the business of the network. If this happens, the cryptocurrency market will make huge steps towards comparing the traditional payment systems like Visa, MasterCard, and PayPal.

How Lightning Network Works with security concerns

All of the cryptocurrencies people out there are not fully anonymous. People can still track one wallet to another. In the Lightning Network, most of the transactions happen outside of the blockchain. Therefore, It will be impossible to track all the micropayments.

Cons of Lightning Network

The main disadvantage of the Lightning Network is that it’s not fully operational yet. Therefore,  there is no way to assume the trustworthiness of the process. However, it’s concept looks great on paper but we should find out whether it’ll look as great on actual or not.

#1 The complexity of the Channel

The Lightning Network is to work through the web channels that will allow seamless transactions. However, there tells what will happen if the payment takes too convoluted a route. 

#2 Channel caps

Another drawback of the network that the current version of the channels is capped. This process creates a situation where users may need to choose the liquidity from the Lightning Network channels. 

This is so far from the ideal, especially for the users who have limited resources.

#3 Hubs

There are some concerns about the forming of ‘hubs’ – a sort of nodes with a lot of capital. The majority of transactions will go through this. Many Bitcoin enthusiasts are predicting a  centralization of the network. But, it is unlikely that such hubs may make significant profits over the transaction fees.


It is worth pointing out that the advantages and drawbacks of the Lightning Network are still very speculative. However, it is not a payment processor but it facilitates the near-instant BTC transactions that cost almost nothing to use.

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