Bitcoin’s Lightning Network has been hailed as the saviour of bitcoin transactions — the thing that will allow the clunky and encumbered original blockchain-based cryptocurrency to compete with the likes of more nimble bitcoin cash, dash coin, lite coin and ripple.
On bitcoin forums many talk of the Lightning Network as though it will solve all of bitcoin’s problems, making transactions quick, cheap and easy. One question few have asked is, if the Lightning Network grows into a widely used bitcoin modification, what it will do to the bitcoin price — something that is closely linked to miners’ fees and transaction costs.
The Lightning Network, first proposed by Thaddeus Dryja and Joseph Poon in a 2015 white paper, creates a layer on top of the bitcoin blockchain, where transactions can be passed back and forth before being added to the underlying blockchain.
When sending a Lightning payment, two parties deposit the funds at one bitcoin address, a so-called “channel,” in which they can exchange funds a limitless number of times.
This maintains bitcoin’s security but means small, regular payments don’t need to be added to the underlying blockchain until the channel is closed.
Many bitcoin traditionalists like the Lightning Network due to its preservation of bitcoin’s gold-like features, leaving the block-size limit unchanged but allowing a far greater number of payments to take place.
The concept has been backed by bitcoin evangelist Jack Dorsey, the founder of micro-blogging site Twitter and U.S. payments processor Square.
The question of block size has previously ripped apart the bitcoin community, resulting in a hard fork last year and the creation of bitcoin cash, which can support a current block size of 32 megabytes, compared to bitcoin’s one megabyte.
The block size determines how many transactions can be confirmed when each new block is mined and added to the chain.