What is the Lightning Network: A Basics for Beginners
Float like a cadillac and sting like a beemer. Sounds like Lightning right? Lightning Mcqueen.
So I assume that made nobody laugh but nevermind. Let us begin this post on Lightning Network.
What is Lightning Network
The Lightning Network is a “second layer” payment protocol which functions on top of a blockchain platform mostly Bitcoin, i.e., #king of the world ( however, only in the crypto world ). It facilitates instant transactions amongst participating nodes and has been acknowledged as a remedy for bitcoin scalability problemo. Comprendo? It consists of a peer-to-peer mechanism for making micropayments of cryptocurrencies by employing a system of bidirectional payment networks, channels, etc. without having to the need to license possession of funds or trust to any external parties.
Routine usage of this network includes commencing a payment channel by allocating a funding transaction to the respective blockchain. This is followed by making n number of lightning transactions which update the conditional distribution of the channel’s funds without broadcasting to the blockchain.
After this, you need to close the payment channel by transmitting the final version of the transaction to circulate the channel’s funds.
The specification for using the Lightning Network relies on Segregated Witness(SegWit).
How does it work
The Lightning Network relies upon the utilization of blockchain technology. By using blockchain based transactions and employing its native smart-contract scripting language, it is feasible to build a safe network of members that can trade at high speed and volume.
That is okay. But how does it work?
1). A multi-signature wallet that contains some amount of any crypto coin (provided by at least one of both parties) is deployed. Although bitcoin is the most predominant user of this service known as the lightning network, platforms such as litecoin have also employed it for providing better service to their end users.
2). The wallet address is then stored within the respective blockchain along with a balance sheet (smart contract) that acts as evidence as in this much of whatever cryptocurrency mostly bitcoin, litecoin belongs to you and this much to me. Simple? Let us move forward.
3). Then once this payment mechanism is in place, two or more parties can pretty efficiently perform any amount of transactions between them. They can do all of this without needing to access this information regarding transactions that get stored on the respective blockchain.
4). After every transaction, all the parties involved are required to sign an updated balance sheet so that everyone concerned stays informed as in how much of any cryptocurrency has been traded and hoarded till date in the multi-sig wallet of XYZ i.e. this much bitcoin or litecoin belongs to XYZ, etc.
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