Bitcoin has been dealing with its high fees and delays in transactions for quite a time now. In this article, we would like to introduce you Lightning network, as a new solution for those problems.
Here in Coingi, we welcome each new attempt to bring Bitcoin into everyday life. Since Lightning Network is getting more and more popular, we've decided to implement it into our exchange in future too.
Soon you 'll have the ability to deposit Bitcoin on Coingi exchange faster and cheaper.
Why the Lightning Network is needed?
Lightning network is basically a solution to Bitcoin’s inability to scale. Bitcoin was designed as a network which would work across countries without relying on traditional financial systems and has been around for 10 years already. Its first layer was developed in 2008.
But as its popularity grew, Bitcoin began to face some practical issues regarding payments.
To take an example: paying by card in a grocery store takes a few seconds. While with the Bitcoin it could take minutes, even hours, to finish the payment.
To have an even more accurate overview, Bitcoin is able to proceed around 7 payments per second and VISA is able to process up to 45,000 transactions per second. And then there is Lighting Network promising millions of transactions per second (https://lightning.network/).
That is why a few years ago a discussion began, on scaling Bitcoin for fast payments. News about Lightning Network may seem new, but implementing the fastest financial process in the world, has been under development for some time now.
Lightning Network is not a new coin or ICO! It is the second layer of Bitcoin, that helps with micropayments. Think of it more like a Bitcoin extension.
How does it work?
The Bitcoin payment process was meant to be slow due to security reasons. However, currents users who are going to use Bitcoin rather than just keep in wallet, are not very eager about this important feature. That is why plenty of alternative solutions started to pop up.
So far the best one seems to be Bitcoin's Lightning network.
When we pay with Bitcoin, every tiny payment is written into a blockchain and stored forever. That is causing a slow process.
THe idea of Lightning Network, on the other hand is, not write all the transaction into blockchain immediately, but rather do several of them ''off the chain'' and write on the blockchain only the final amount (settlement layer). So when two parties decide to transit money, they open payment channels between each other with deposit made upfront. As long as they are exchanging funds, the whole action happens off the chain.
Channel can be open through Lightning Network wallet with two signatures - ours and partners. Funds insert there can only be accessed and closed by both of those signatures. If one of the participants would try to close the transit alone, there is then a danger of money lost.
To simplify it, let's think of that as an agreement between two friends. Both bring the funds (Bitcoin) and store them at the bank. Then open a paper notebook together (Lightning Network channel) and start to write down all transactions made between each other. Without touching the real money stored in a bank. This paper would be the payment relationship between them and the bank (blockchain) is not present during those micro transits. Once transfers are done and both parties agreed what the payment balance is, the money from a bank is taken and use to finish that operation.
Blockchain does not need to know about 100 little payments, enough to put there the final one.
A different point of view brings Andreas Antonopoulos. His explanation of ‘’streaming money’’ worth listen:
Who is using it now? Almost ... everyone!
What is the situation right now? There is already a number of businesses, that accepts payments by Lighting. Currently, Lightning Network has already a total of $2 million worth of Bitcoin. And the whole network has increased by 167% in November 2018!
Every revolutionary tool we use nowadays, made it through history only thanks to adaptive companies and customers eager for change.
And it is the same case with Lightning Network now.
Because as you can see, it is not only ''geek'' companies anymore, who allowed their clients to pay by Lightning:
1) First of all, there is Bitcoin Lightning Wallet available on Google Play, with plenty of positive reviews already, making it easier for a broad audience to get along with Lightning payments.
3) Another service provider, who decides that accepting Lightning payments would be a great idea is VPN company TorGUard.
4) One of the biggest players seems to be a company called Bitrefill. On their website are available prepaid vouchers of companies like Amazon, Hotels, Uber or Viber. Most welcomed by their current customers are prepaid phone vouchers:
''Bitrefill lets you refill your prepaid phone, pay bills, and buy vouchers with Bitcoin and Litecoin. We support prepaid SIM cards from over 600 operators in over 160 countries, and vouchers and bills across 30 services.''
What's so great about all that? Even though Amazon itself does not accept payments by Lightning, Bitrefill sells vouchers which can be used there.
This is a great opportunity not just for B2C customers, but for smaller business who wants to reach a new type of clients too!
5) If you ever research any pieces of information related to Lightning Network, then you have stumbled to all the ''coffee shops'' examples. Well, good news, there is actually a place similar to this popular example: Energy Kitchen, located in Bern, Switzerland decided to accept LN payments from now on.
Here is video guiding you through the process:
6) Currently, a plugin for Microsoft Excel is being developed, so we will be able to send payments from spreadsheet soon.
7) Few porn sites enabled a Lightning Network payments too...
8) And then here is this guy, who is using LN to pay for electricity of his e-bike...
9) Or this random store in Australia:
10) And soon on Coingi too
The whole list of places accepting lighting network is here: http://lightningnetworkstores.com/
At the beginning of the year 2018, no one would expect such a growth within several months, and here we are, almost ready to pay for our daily coffee with crypto.
How to start using Lightning Network
As you know, Lightning Network works by creating channels: two participants create a Lightning payment channel that contains a particular amount of Bitcoin which is locked up on the network. The only way to spend is to confirm it by your and second sides signature. What could sound complicated in theory is actually very simple to do in reality.
More technical tutorials are available online, but when using the app, the set up fits into two steps:
1) Download a and install wallet supporting the Lightning Network.
2) Choose prefered action (screenshots taken from Bitcoin Lightning Wallet)
Bitcoin Lightning wallet: Be sure to save a mnemonic phrase once a new wallet is created. Having a mnemonic phrase is the only way to recover your balance in case of any bugs or phone loss. You will be asked to do so, once the app is installed.
Is Lightning Network growing anyhow?
Its popularity went up mainly during 2018. See this picture of Lightning Network in January 2018 vs October 2018:
What about the fees and speed of the payment?
Even though that fee is not required while sending a Bitcoin, it can definitely help to speed up the process. Sending payment this way could be costly then. On the other hand, Lighting has almost zero fees. What does that ''almost'' stand for?
Unfortunately, we do not have a proper answer in terms of % from a transaction yet. There is no withdrawing fee, but you are paying for a closing the channel. Not miner fee though.
Are my money locked at some point?
You can always access your money and move them wherever you need. So the answer is yes and no. Yes, you choose a particular amount of Bitcoin to ''put'' onto Lighting, this amount will just be there ready to spend. But once you decide to take it back, you just do by closing the channel. The Bitcoin used through Lighting is also not signed off the blockchain in any time during the process.
Is the Lightning Network open source?
Yes, it is.
Is there some protection about double spending?
The Lightning Network actually has a cheater protection built it. One of the biggest concern about safety is, that while you are broadcasting the money, you are still basically keeping them with you and actually send them once the channel gets closed. So why not to broadcast the money to more people and just take your bitcoin and back off? Well if you would try this little trick, the fraud protection in Lightning Network would send your money over to the party you were streaming to. Not just the amount you were about to pay, but the whole bulk of money you have put into Lightning Network. Sounds harsh but works as a good prevention.
Can I invest in it, or make money somehow?
Unfortunately not, maybe with a lots of effort, you would be able to earn few cents, but it's not worth the time.
Who are the creators?
Joseph Poon and Tadge Dryja created the idea in 2016. Currently developing with help of Lightning beta, Acinq, Lightning Labs and Blockstream and several independent developers.
Has a Lightning Network its own blockchain?
No, Lightning is dependent on the Bitcoin blockchain.
How is practical for exchanges?
Here in Coingi we are going to implement Lightning Network in order to provide our users faster and cheaper deposits of Bitcoin.
Is the Lightning Network only open to Bitcoin?
There are currently attempts of Litecoin, Monero or Vertcoin to participate on Lightning Network. Also Etherium designs its own off-chain solution called Plasma.
There are threats associated with every growth, and security is discussed while the popularity of Lightning payments grows. To protect users against potential double-spending or theft, fraud protection is built into the network already (see FAQ). But then it is the responsibility of users to protect their money.
Just as we take care of our passwords and data on our cards and bank apps, we should do the same for Lightning Network payments:
1) One of the recommended precautions is to always have Lightning Network on. If a user goes offline for a few days, there is a possibility that their funds could be stolen. This already happened to one unattentive user.
2) Another issue to be aware of is that uninstalling the app may also result in lost money, because an updated balance of funds history must be stored somewhere. Backup solutions are currently being developed, although none have been completed at the time of writing.
A different possible threat is to other coins. Those could lose their market share, because they might not be needed anymore. For example, Litecoin, which is designed for faster transactions, will not be needed much if Bitcoin can complete microtransactions faster ''itself''.
This will lead to a clearance of the crypto market as we know it, and increase the value of Bitcoin. FInally.
To sum it up
Lighting Network is going to bring faster and more effective use for Bitcoins micro payments. Future plans are, to add ability swap coins, once more cryptos than Bitcoin will get on. Lighting Network is already working and has growing user base so if you are up to try something new, enjoy.