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TheLightning Network (LN) is a payment protocol built on thebitcoinblockchain.[1] It is intended to enable fast transactions among participating nodes (independently run members of the network) and has been proposed as a solution to thebitcoin scalability problem.[2][3][4]
Joseph Poon and Thaddeus Dryja published a Lightning Network white paper in February 2015.[5][6]
Lightning Labs launched the Lightning Network in 2018 with the goal of reducing the cost and time required for cryptocurrency transaction. Specifically, the bitcoin blockchain can only process around 7 transactions per second (compared toVisa Inc., which can process around 24,000 transactions per second). Despite initial enthusiasm for the Lightning Network, reports on social media of failed transactions, security vulnerabilities, and over-complication led to a decline in interest.[7]
On January 19, 2019, pseudonymousTwitter user hodlonaut began a game-like promotional test of the Lightning Network by sending 100,000satoshis (0.001 bitcoin) to a trusted recipient where each recipient added 10,000 satoshis ($0.34 at the time) to send to the next trusted recipient. The "lightning torch" payment reached notable personalities including former Twitter A.K.A X CEOJack Dorsey,Litecoin CreatorCharlie Lee, Lightning Labs CEO Elizabeth Stark, andBinance CEO "CZ" Changpeng Zhao, among others.[8][9]
Andreas Antonopoulos calls the Lightning Network a second layer routing network.[10] The payment channels allow participants to transfer money to each other without having to make all their transactions public on theblockchain.[11][12] This is secured by penalizing uncooperative participants. When opening a channel, participants must commit an amount on the blockchain (afunding transaction).[13] Time-based script extensions likeCheckSequenceVerify andCheckLockTimeVerify make the penalties possible.
Transacting parties use the Lightning Network by opening a payment channel and transferring (committing) funds to the relevant layer-1 blockchain (e.g. bitcoin) under asmart contract. The parties then make any number of off-chain Lightning Network transactions that update the tentative distribution of the channel's funds, without broadcasting to the blockchain. Whenever the parties have finished their transaction session, they close the payment channel, and the smart contract distributes the committed funds according to the transaction record.[6]
According to bitcoin advocateAndreas Antonopoulos, the Lightning Network provides several advantages over on-chain transactions:
The Lightning Network (LN) operates through bidirectional payment channels between two nodes, forming smart contracts that facilitate off-chain transactions. If either party closes a channel, the final state is settled on the Bitcoin blockchain.[14] While this design enables faster and cheaper transactions, the necessity of on-chain transactions to open and close channels introduces scalability constraints.[15]
To preserve privacy and security, the network employs anonion routing protocol, wherein each node in the path decrypts only enough information to determine the next hop, without knowledge of the payment's origin or final destination.[16]
Bitcoin was originally intended to be apeer-to-peer electronic cash system. A notable early example occurred in May 2010 whenLaszlo Hanyecz paid 10,000 BTC for two pizzas[17]—an event now noted annually asBitcoin Pizza Day.[relevant?] As Bitcoin's value and network congestion increased, this use was no longer practical.[citation needed]
The Lightning Network is intended to address this and to make peer-to-peer payments more practical.[citation needed]
Several cryptocurrency wallets offer support for the Lightning Network.[citation needed]
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