How does Bitcoin’s Lightning Network work?

How does Bitcoin’s Lightning Network work?

The Lightning network is essentially a payment channel layer that functions as a second layer over the Bitcoin network. With lightning, thousands of transactions per second with zero to low fees are possible, without compromising the decentralized nature of Bitcoin. Lightning Network is already operational on the network, but in test phase, but you can still use Lightning implementations and wallets to host on the network and start using lightning. The basic idea of ​​Lightning Networks is that everything doesn’t need to be written on the blockchain of Bitcoin. Unlike the on-chain Bitcoin, for the Bitcoin Lightning network to work, it is necessary to create a payment channel with someone we want to trade with. It is only for the opening and closing of the payment channel that we need a chain activity for which the traditional transaction steps apply. For such a bidirectional payment channel, a multisig wallet is needed, whereas in traditional on-chain transactions, only the sender must sign transactions with his private key, but in multisig transactions, the sender and the recipient must sign the transactions. Likewise, we can trade with anyone in the world via indirect channel routing where there can be multiple nodes and channels, and we just need a route or network of nodes that allow us to to connect or reach the recipient. In both examples, if a counterpart is malicious or even if the intermediate channel is malicious, your funds are repaid in your wallet within a given time. This is done via a smart contract called Hash Timelock Contract.

Leave a Reply