Excerpt
I explain how the Lightning Network with its channels speeds up Bitcoin transactions and reduces fees, making it perfect for everyday payments. I also cover how this layer 2 solution helps Bitcoin scale without compromising security. Watch the video to learn how you can benefit from using the Lightning Network!
Transcript
The Lightning Network. To explain that, I want to talk about the Bitcoin blockchain first. We call the Bitcoin blockchain the base layer; its transactions are called on-chain transactions. They need at least 10 minutes to be settled, and they can incur quite high fees when the blockchain is congested, so when a lot of people at the same time want to send bitcoin. Which is also why you wouldn’t use it for micro-transactions or small payments. The reason for this is that the focus of Bitcoin is to be as decentralized as possible. Because of this, there are some technological limitations that limit the maximum number of transactions in each block to around 6,000. At the moment, I’ve seen some blocks with a little bit more than 6,000 transactions in it. So, if you calculate that in 24 hours, the Bitcoin blockchain can process around 864,000 transactions, and that’s not enough for 8 billion people who might want to use Bitcoin. That’s where the Lightning Network helps scale Bitcoin to more users and usage. It’s possible to do micropayments that are instantly settled, so you don’t need to wait for them. You can imagine the Lightning Network as a network of tubes that are interconnected with the Bitcoin blocks. All satoshis that are on the blockchain can basically be redirected into the tubes of the Lightning Network. Every tube is connected to other tubes via Lightning nodes, and these tubes are called channels. So, the Lightning Network is a network of channels, and the more channels, the higher the connectivity and the higher the performance of the Lightning Network is, meaning fewer payments are failing. But today, the performance of the Lightning Network is great anyways. When I used it for the first time in January 2019, I believe, a lot of payments failed. It was very complicated to open wallets, and you needed to know a lot of things to use a Lightning wallet. But today, it’s very easy, for instance, with the Breez wallet or the Phoenix wallet, and you can even self-custody your funds without the need to manage your channels yourself. The Lightning Network is a true layer 2 network. You can swap in and out of the Lightning Network without the need for an intermediary. The sats in your self-custodial Lightning wallet are basically the same as the sats on the Bitcoin blockchain. On the Lightning Network, I have some great explainer videos about the Lightning Network and the Phoenix wallet in a playlist on my YouTube channel. The playlist is called “Lightning Wallets and Tutorials.” Go and look that up.
