What is Lightning Network, and How Can it Help Bitcoin Investors?


When Satoshi Nakamoto introduced bitcoin, James A. Donald commented about the system and said that “…but the way I understand your proposal, it does not seem to scale to the required size.” Bitcoin’s scalability problem has continued to this day, and it is the biggest reason why bitcoin is not easy to be used in daily life. However, thanks to the lightning network, that problem could be eliminated. 

What is Bitcoin Scalability Problem?

In the Bitcoin blockchain network, a block is created in 10 minutes, and its size limit of 1 megabyte. That means the average size is a maximum of 7 transactions per second. If you look at the Visa, its average size is 24,000 transactions per second.

In the first days of bitcoin, this transaction size did not create any problems. However, after the crypto coin’s popularity, this problem became a very serious issue. Many people have tried to solve this problem, and now the lightning network brings a solution.

The Bitcoin scalability problem has been solved thanks to the Lightning network — Bitcoin can now be utilized even in everyday life. Consider El Salvador, where people utilize bitcoin on a daily basis via the Lightning network. For instance, in El Salvador, you can get a Big Mac or a Starbucks coffee for BTC with basically no fees, and payment is immediate. There is no inconvenience for the user, and there is no need to figure out how the technology works or how to set up a node. Simply scan a QR invoice and swipe to pay — that’s how they do it.

What is Lightning Network?

We can easily say that the lightning network is another layer above the blockchain network, but it is connected to the network. For example, John wants to buy some clothes from Anne’s store. At the same time, Anne wants to buy a ring from John’s store. They want to pay the price with bitcoin. 

Typically, their transactions would take more than 1 hour (in the bitcoin blockchain, it takes 30 minutes to finalize a transaction.). However, they can open a channel in a lightning network. First, they need to decide the channel’s size, i.e., the number of bitcoins. For instance, both have four bitcoins. John is paying one bitcoin to Anne, and Anne is paying two bitcoins to John. In the end, John has five bitcoins, Anne has three bitcoins. When the transactions are done, they can close the channel. Initial and final balance information is sent to the bitcoin blockchain only after the lightning channel is closed.

Set Up a Lightining Network

I will shortly explain how you can run a bitcoin node with Raspi, but you can find more technical and detailed information on the internet. 

If you want to use lightning payment first, you need to be running a bitcoin node that means your computes stores the entire bitcoin blockchain and runs a bitcoin implementation. You can use Raspberry Pi (Raspi) for this. 

You should install Raspberry Pi OS to your SD card, and then you plug it into your SD card to your computer. Then you open the Raspberry Pi app and download the OS. You can choose “Raspberry Pi OS (32-bit)” and “MicroSD Card” for storage. 

You need to place it in your solid-state drive (SDD) for an enclosure. When Raspberry Pi starts to work, you must enable Secure Shell Protocol (SSH). This step allows you to use Raspberry Pi from your computer.

One important note, after you have enabled SSH, you should change the default password for protecting your Raspi from external attacks.

Download Bitcoin Core: What is Lightning Network

Now, you can download the bitcoin core. This step generally takes days and depends on your connection and bandwidth. It would be best to be patient because downloading bitcoin networks takes between one week and ten days. 

After downloading the blockchain, you can set up a bitcoin lightning node. You are not running a nod; you are running the Lightning Network Daemon, a.k.a. lnd. There are some ways to do this, but I prefer to install a release binary because it is the easiest way.

You must download the latest version of the Lightning Network Daemon. After this step, you need to create a configuration file. The configuration file contains the settings of lightning nods, so this step is very important.

Before starting the bitcoin lightning network, you should create a lightning wallet in the network. The first time it looks pretty confusing, but you can understand it is very easy when you finish all the steps. 

Open and close lightning channels are not only good for the transaction time but also for atomic swaps.

Atomic Swaps

Lightning transactions allow one of the smart contract technologies called atomic swaps. With atomic swaps, you can exchange one cryptocurrency for another one without using centralized intermediaries. 

People sometimes want to exchange their coins with others, but it is not easy. Sometimes you first need to change your coins to another one and then exchange this coin with another coin that you want to buy in the first place. 

You can exchange one coin with another one in lightning channels without third-party coin exchanges. Some people think it is in use only for tests, but the lightning network is actual usage is in the bitcoin network.

What do you think about the lightning network? Do you want to try and use it? Please tell us your thoughts and if you have your experience with the lightning network.

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