The Lightning Network is one of the many concepts that developers have come up with over the years in an attempt to solve the crypto scalability problem. What makes it different from most other such concepts is that this one actually shows a real potential.
Bitcoin (BTC), for example, has had scalability problems for a long time now. Ever since its creation, it was only able of handling 7 transactions per second (TPS). In the beginning, this was more than enough. However, as its popularity grew, more and more people started using it. Soon enough, the number of transactions piled up, and now there are thousands of them constantly waiting to be validated.
As such, they often have to wait for a long time to be processed, which causes payment delays, not to mention extremely high fees. The Lightning Network (LN) aims to change this.
What is Lightning Network?
The Lightning Network is basically an extra layer that would be added to BTC’s blockchain. On this layer, users can establish direct payment channels which can be used for sending limitless transactions. This is a perfect solution for two entities that know that they will often have to send payments to each other. Upon establishing a payment channel, they can deposit a certain amount of coins, and then change ownership of these coins as many times as necessary.
Only after their collaboration is done, the payment channel would get disabled. The final result is the only thing that would actually get recorded on the blockchain.
For example, if X and Y were to start a payment channel and each deposited 3 BTC, they would have 6 in total. If X sends 1 BTC to Y, X would remain with 2 BTC, while Y would have 4. If they decide to repeat the process, X would have 1 BTC, and Y would have 5 BTC. If they were to shut down the payment channel at this point, the only thing that the blockchain would record is this final situation.
That way, recording numerous small transactions would be eliminated, and the scalability issues would be reduced, if not completely resolved.
Other benefits of the LN
Obviously, this system would be perfect for making microtransactions. It is instant, almost completely free, and still pretty safe for sending smaller Bitcoin payments. The larger ones would still have to go via regular method, but eliminating microtransactions would speed the process up immensely.
Furthermore, the LN would allow X to send transactions to Z as well, even if they are not directly connected. If X is connected to Y, and why has a payment channel with Z, X can use this to send a transaction to Z without a payment channel directly connecting them.
How does the LN affect BTC and LTC?
Bitcoin, Litecoin, and all other coins that came to be as a fork of a Bitcoin Core client would directly benefit from the LN. In fact, Litecoin is among the first cryptos to adopt this technology.
LTC is also known for implementing Atomic Swaps, which allows it to be spent pretty much anywhere where BTC itself is accepted. Obviously, this technology has a potential to greatly improve both the speed, as well as the price transactions. It actually has a potential to solve one of the greatest problems of the crypto world.