What is the Bitcoin lightning network?
As you probably know, bitcoin has become relatively slow and expensive to use, making it impractical for small and frequent transactions. The lightning network is essentially a second layer solution for bitcoin, which was designed with the intention of solving these problems.
In order to make bitcoin transactions fast and cheap, the lightening network creates a network of payment channels that exist outside the main bitcoin blockchain. In that sense, the concept is similar to how Polygon helps to scale Ethereum.
How does the lightning network work?
The lightening network works by allowing users to create a “payment channel” with each other. Once a payment channel has been established, users are able to send transactions back and fourth without having to broadcast each transaction to the main bitcoin blockchain. Since transactions within the “payment channel” you’ve created don’t make use of the main blockchain for processing, the fees are low and the transactions are quick.
Is this a practical solution? In order to initially set up payment channel with someone, you WILL have to transact with the main blockchain, and pay the standard fees. You will have to pay fees to close the channel as well. So, the lightening network is rather impractical for one-time buys and sells. It’s only worth setting up a payment channel with someone if you plan on conducting frequent transactions amongst each other.
How do you use it? To use the lightening network, you just need to download one of the wallets that support it. Here are a few options..
- Breez wallet
- Phoenix wallet
- Wallet of Satoshi
- Blue wallet
- Muun bitcoin wallet
- Electrum wallet
- Zap wallet
- Eclair wallet
- Cash app
Don’t take any wallets on that list as a personal recommendation however. I haven’t used them. As usual, my recommendation is to get a hardware wallet for maximum security. Mobile wallets, in my opinion, should be used as a secondary wallets for convenience. Meaning, don’t keep the bulk of your coins on them, but send small amounts from your hardware wallet to the mobile wallet for day to day purchases.
Are people actually using the lightning network?
The usage of the network has been increasing every year. The government of El Salvador, which made bitcoin legal tender in September 2021, has enabled the lightening network in their national bitcoin wallet called Chivo.
In early 2022, Jack Dorsey’s “Cash App” announced it would be implementing the lightening network as a payment option. At the time of this writing, Cash App has over 100 million downloads and 44 million monthly active users.
While more and more people are getting access to the lightening network, mass scale adoption depends on the practicality of its usage. It will be interesting to see how things develop though.
Overall thoughts
Interesting concept that aims to solve a real problem. The downsides are obvious though. It’s impractical for one-off payments with people you don’t regularly transact with as you’d have to pay standard fees on the main chain to open and close the payment channel. Might as well just send bitcoin normally if you’re going to do that.
Also, if someone pays you within a channel, you need to first close that channel (and incur a fee on the main-chain) to get the bitcoins out.
On a practical level, this means that if you set up a payment channel with your local store so they could receive lightening payments, they would have to frequently close the channel whenever they wanted to utilize the bitcoin to pay for their expenses.
See how it can get complicated?
Another concern I have is the fact that “Lightening Labs”, the company behind the lightening network, is currently listed as a “partner” on the WEF website. That alone is enough to make me not trust it.
