Written By Elizabeth Saul


What is the Lightning Network | How Does Bitcoin Lightning Work

What is the Lightning Network | How Does Bitcoin Lightning Work

Guarda Wallet breaks down the basics of the Lightning Network – a widely discussed topic in the cryptocurrency space. Find out more on the LN from this guide.


From the rise of Bitcoin in 2008, the question of cryptocurrency scalability became an issue for the majority of cryptocurrency giants. Why is scalability so important?  Basically, the thing is that the Bitcoin network has a limit of transactions per second. Around 7 transactions can be performed. This was a fantastic result for the start of the network, but as the adoption grew, the transactions were starting to get stuck in traffic.

As a result of this overload, Bitcoin needs to have the possibility to increase the number of transactions. All of this just to start competing with the existing payment systems.

There already were numerous proposals on how can Bitcoin make it work, but the ultimate tool has not been found yet. There is, however, one particularly interesting proposition that we would like to describe in detail in this article. The Lightning Network.

What is the Lightning Network?

The Lightning Network development team wants to eliminate the need to store all the information on the blockchain. Now, the data of every transaction is saved on the public ledger (blockchain) and this is just the way Bitcoin works.
Instead of this system, the Lightning Network Bitcoin scaling solution adds one more layer to the blockchain. Users can create payment channels between any two parties. The transactions via such channels will be instant and the fees will be diminished.

How does a Lightning Network payment work?

There are two people in need of sending some money to each other. Imagine you and your friend. We all send some money to our friends from time to time, don’t we? So, you would set up a channel on the network.
The first step is getting a Lightning Network wallet (Multisignature). MultiSig wallets allow accessing the funds with multiple private keys. After this, you would deposit some BTC into this wallet.
After these steps, you will be able to use Lightning to transfer cryptocurrency. The transactions will be more like pushing the funds of the shared wallet back and forth.

When the channel is closed, a special algorithm determines the ownership of funds. Also, after all the lightning transactions on the channel are over, the balance is shared with the original Bitcoin blockchain.

When is Bitcoin Lightning Network coming?

The code of the network is very complex and the developers recommend BTC holders to stay patient and wait. The Lightning Network needs to prove itself safe and stable before actually starting adopting it. The Bitcoin Lightning Network date of testing period end is yet unknown.

Some parts of the cryptocurrency community are definitely quite hyped up about starting to use the Lightning Network. For instance, there was this memorable Twitter flashmob to prove the work potential of Lightning.

Possibly, the best idea is to stay calm and wait for the network to develop. The current implementations of the network are still quite hazy, but it’s worth checking out.