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How Does Lightning Scale Bitcoin?

The Lightning Network was originally proposed as a solution to address “the Bitcoin blockchain scalability problem,” as the network white paper phrased it. As the authors described, Bitcoin is unable to serve effectively as the world’s payment platform because it broadcasts all transactions to all network participants.

“If each node in the bitcoin network must know about every single transaction that occurs globally, that may create a significant drag on the ability of the network to encompass all global financial transactions,” per the white paper. “It would instead be desirable to encompass all transactions in a way that doesn’t sacrifice the decentralization and security that the network provides.”

As the authors went on to point out, a traditional payment network like Visa can manage 47,000 transactions per second, while Bitcoin was supporting fewer than seven transactions per second with its 1 MB block limit. Their proposed solution to this scaling problem was the Lighting Network, a layer two protocol that allows users to transact with BTC while only recording these transactions on the Bitcoin blockchain when channels are funded or closed.

Since it was introduced in a conceptual white paper, the Lightning Network’s focus has been on scaling Bitcoin as a tool for rapid payments and transactions. Despite its many advantages, Bitcoin’s emphasis on decentralized trustlessness means that it is relatively cumbersome and slow to confirm transactions, compared to legacy payment networks like Visa.

In the network white paper, the authors describe their vision for how the Lightning Network can scale Bitcoin into a much more efficient and fast payments network.

“Using a network of these micropayment channels, Bitcoin can scale to billions of transactions per day,” according to the white paper. “Sending many payments inside a given micropayment channel enables one to send large amounts of funds to another party in a decentralized manner. These channels are not a separate trusted network on top of bitcoin. They are real bitcoin transactions.”

If the Lightning Network does allow Bitcoin to facilitate as many transactions per second as a network like Visa, it could very well make Bitcoin the preferred network for payment processing and transacting around the world. Bitcoin can enable more private, barrier-free transactions around the world with lower fees for merchants than traditional payments networks (though that may not always be true) and, as a result, the Lightning Network could be a key to hyperbitcoinization scaling.

Of course, the actual work that Lightning does to scale Bitcoin will depend on how widely the network is used. While Lightning adoption has grown since it was first introduced, Bitcoin has yet to become the world’s de facto payments network. For this to change via Lightning, many more Lightning nodes will have to come online, a prospect that faces its own obstacles.

Being such a new technology, there are questions about the actual security and useability of the Lightning Network at scale. It’s possible that the Lightning Network will support atomic swaps and, therefore, cross-chain transactions, thus unlocking new potential use cases, but at the time of this writing, this potential has gone relatively unexplored.

Still, if the full potential of the Lightning Network is one day realized and its associated risks and shortcomings are solved, this Layer 2 solution could be one of the greatest scaling advances that Bitcoin has ever seen.

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