Akash Kanare

 LIGHTNING NETWORK AND ITS WORKING Introduction Bitcoin was introduced to the world by the pseudonymous Satoshi Nakamoto with a hope that one day it would perhaps be able to obviate the usage of fiat currencies. The creators of Bitcoin didn’t realize that it wouldn’t be a cakewalk to replace the traditional money that people were used to seeing, or to say the least, they didn’t give enough thought to how they’re going to scale their revolutionary creation into the market. Being one of the veterans into the cryptocurrency business, Bitcoin has been around for more than ten years now, and has tasted good success achieving some extraordinary feats. Though grave allegations have been made by many experts time and again that it is akin a Ponzi scheme and the amount of energy being splurged in mining Bitcoins is way too high to be deemed as feasible, it has continuously been achieving ATH (all time high) figures compared to fiat currencies every now and then. To say the least, the superannuated cryptocurrency is one of the primary, if not the paramount, hotshots of its industry. With that being said, there’s still a long way to go, for it to be deemed as a global currency. Today, we are going to discuss about the major impediment that Bitcoin and other cryptocurrencies in the world have been facing ever since their inception i.e., the long-standing scalability issue. Throughout its tenure, Bitcoin has only been able to process at a rate of seven transactions per second. While it was a considerable number in the rudimentary phases, it is not good enough considering the fact that it was created with the very intent of conquering the global transactions with the unique peer-to-peer transaction ideology in a decentralized system. The transactions' system has been congested for a quite a while now, and it is posing huge risks to the growth of the cryptocurrency. It goes without saying that if the said cryptocurrency wants to replace existing payment systems, it needs to be better than them. But that is not the case as of now, as Bitcoins puny 7 transactions per second are nowhere close to defeating Visa's average 24,000 with its peak capacity reaching 50,000. A lot of contemplation has already happened within the Bitcoin community, but a concrete solution to the scalability issue is yet to be finalized. One of the forerunners as the possible solution to this problem, which is still under testing, is the Lightning Network. Explanation of the Lightning Network: As of now, the Bitcoin platform is keeping track of every transaction that has happened on the blockchain, and that’s the reason behind the slow transactions. At one stage or the other, it was obvious that someone would be tempted to preempt these track of transactions, and thereby speeding up the process. With the usage of Lightning Network, an extra layer to the Bitcoin blockchain is added, and users can create payment channels between two people on that layer. These channels would be eternal, and as the channel is being setup between only two people, the transactions would go through almost instantaneously. Also, the transaction charges would be really low or there could well be no charges at all. Modus operandi of the Lightning Network: Since most of the people have their transaction limited to few people who they transact with more frequently, this technology would come in really handy and would be advantageous for them. Say for an example, Kelly and Morgan want to send money to each other with minimal effort & charges, and they wish to achieve this swiftly without having to get into the network congestion hassle. Now, they just need to create a payment channel on the Lightning Network in order to achieve this. The wallet that we’ve just referred to needs to be a multisignature wallet, so that it ensures that both of them can access it via their respective private keys. This concept is just similar to the working of shared mailboxes, wherein two or more users can see the contents of the shared mailbox and perform disparate functions accordingly within/with use of the mailbox. Once the wallet has been setup, they can both deposit a certain amount of Bitcoins into the wallet, say, 4 BTC each. They can now proceed with transacting with each other using the wallet. Now, the point to note here is that all the transactions made within/using the wallet are, essentially, just the re-allotment of the funds within the wallet. To put things into perspective, if Kelly wants to send some money to Morgan, say, 2 BTC, she’ll have to do that by transferring the ownership rights of the said amount to Morgan. Also, once the transfer has been done, they can sign into the wallet to see the updated balance sheet (it will reflect all the transfers made including the recent one). Now, here’s the catch, the actual redeployment of the funds would occur only after the channel's closed. Let us consider a situation in which the channel’s closed provided the last and only transaction made was the one which included Kelly giving out 2 BTC to Morgan. In an event of that happening, Morgan will get 6 BTC (4 that he had + 2 BTC received from Kelly) and Kelly would get only 2 BTC. So, now the question arises, will the history of transactions that happened within that channel between the people won’t show up anywhere on the main blockchain layer? The answer is both a yes and no. Here’s the explanation for this. Once the channel is terminated, only the initial and the final balance is broadcasted to the Bitcoin blockchain, and not the entire number of transactions (only 1 in the above example shared) that led to the eventual balance sheet you see. Another enthralling aspect of the Lightning Network is that once it gets streamlined and adopted across different cryptocurrency platforms, you won’t necessarily have to create different wallets for different individuals in order to send them your cryptocurrency. That being said, you would be able to make payments using the existing wallets to different individuals (with those individuals not being a part of that wallet originally). And that would be entirely possible because the system would find the most swift route on its own to initiate the transaction in question. What a life-saver would that be for Bitcoin and other cryptocurrencies! This could well be the turning point the cryptocurrency world was looking for as such fast transactions would ease out otherwise convoluted transactions, and with no additional compensation for transactions at all. Like there are two faces to a coin, with huge merits of the Lightning Network technology, challenges lie ahead for the adoption of the technology. Some of which are discussed below. First and foremost challenge that lies ahead of the Lightning Network to take over would be to ensure security of the transactions. Since the principle of the technology warrants it to work above the blockchain and create an additional layer to facilitate payments, it no longer would have the original layer of security it earlier possessed. As of now, the only recourse that the Bitcoin community is coming up for security concerns is limiting this technology to relatively smaller transactions. This infers that the big transactions in terms of cryptocurrency involved would still be happening on the original blockchain layer. Another conundrum in the course of its adoption is that it’s still a “work in progress,” so chances of other better options coming to solve the scalability issue are high. The Lightning Network, in order to stamp its authority, needs to corroborate its feasibility and reliability to the Bitcoin community. Bitcoin Cash (BCH) is one of the front-runners in the list to pip the Lightning Network. As per the tests that are being conducted, one of the riveting things that came up is that the Lightning Network is capable of supporting cross-chain atomic swaps, which is transfer of tokens between different blockchains. So, one would be able to trade one cryptocurrency for the other without having to go through the cryptocurrency exchanges. The initial tests of exchanging tokens between the Bitcoin and Litecoin test blockchains have been quite successful, and that has raised some serious expectations towards the Lightning technology. Who developed the technology? The white paper description for the technology was released back in 2015 by Joseph Poon and Thaddeus Dryja – the current version of the paper can be seen here. The three teams, who are responsible for most of the work pertaining to the development of implementations of Lightning Network, that are currently working on their respective implementations of the Lightning Network written in different programming languages are as follows: 1.) Blockstream- It works on Lightning Network version programmed in C language. 2.) Lightning Labs- They are developing a Lightning Network Daemon (lnd) written in Golang. 3.) ACINQ- This startup accounts for the Scala implementation of the technology. There are some other implementations too, which are in the development stage. The startups listed above are working rigorously to get the best of the technology. Also, all the three implementations coordinate with one another, so they can work together exuding some great interoperability. Answering the essential W's for this technology: We shall now move forward to answering why, when and where this technology would find its application. The technology was meant for Bitcoin only originally, but with the problem of scalability rising for almost every cryptocurrency or the other, it was always on the cards that the Lightning implementations must also be developed for other cryptocurrencies such as Litecoin, Zcash, Ether etc., and that’s what happened. The developments of implementations for other cryptos are going on, and they’re expected to come up good in the not-so-distant future. With real Bitcoin being sent and received almost every time using the three implementations, the interoperability of the implementations seem impeccable, at least as of now. However, there’s no real software for the real-life users to make the transactions using this technology owing to the technology developments still being in the nascent stages. The mainstream release of the technology is being procrastinated because of the developers already admitting to the complexity of the code used. Plus, the current implementations are quite buggy and aren’t that safe to be used just as of now. It has already been advised to the users to learn about the network using Bitcoin's testnet and not send any real Bitcoins. The test environment would help users to get acquainted and well-versed with the systems and procedures of the technology, and would do a world of good to their knowledge about the network. There’s no denying the fact that the cryptocurrency world is eagerly waiting for the new technology to be unveiled and be functional ASAP, but the developers prognosticate that there’s still time before the technology can be completely adopted, which can range from a matter of some months to couple of years. This is because some rigorous testings are being conducted on a frequent basis to gauge the entire technology's shortcomings, and how to better them. This technology would be used if it solves the fundamental problem of scalability. It would be well received and adopted across different cryptocurrency platforms if it proves to be the vital countermeasure to the scalability issue. If it indeed gets accepted across sundry of cryptocurrency platforms, chances are high that the cross-chain atomic swap technology would be developed further, and the testings for that would augment. This would mean embarking upon building truly decentralized cryptocurrency exchanges. Merits We are enumerating some of the pros associated with the Lightning Network. With that being said, it needs to be reiterated here that the technology is still a work in progress, and nobody can tell with a great degree of certitude that it would work ideally as the team of developers intend it to be. If everything goes right, below are some of the perks that you would enjoy with the technology being in place: Speed of transactions: It is one of the primary reasons why the technology was put forward for in the first place i.e., augmentation of the speed of the transactions and removal of the delay. So, once the technology is full-fledged or completely established, the payments would be almost instantaneous irrespective of the state of the queue of transactions. This would enable the cryptocurrency platforms to be more user friendly and feasible to use. Furthermore, it would help cryptocurrency platforms to compete with traditional platforms like Visa, PayPal, or perhaps, if everything goes well, beat them. Transaction fees: This could be one of the best brighter aspects of this technology. As you’re doing the transactions within the Lightning Network channels and outside the blockchain, you’ll have to pay the least of amounts as fees, if there’s any at all. This is due to the fact that there’s fewer channels to go through for your transactions to be verified, so there would be less or no charge at all. The relaxation you’d get on transaction fees using the Lightning technology could well be revolutionary, and may result in true globalization of the cryptocurrency. This would mean you could use it easily for making payments in shops, cafes, bars, and everywhere else. Scalability: The Lightning Network is expected to take the transactions per second figure of major cryptocurrencies to at least a whopping 1 million! If it’s able to achieve that, it could well be the red-letter day in the history of cryptocurrencies. Cross-chain atomic swaps: It would be able to facilitate smooth transfer of one cryptocurrency tokens into another's blockchain without depending upon any third-party mediating authority such as an exchange. The only condition for the cross-chain atomic swap is that the two blockchains in question must have the same cryptographic hash function, and luckily, most major ones do have it. Security and anonymity: All the transactions taking place for Bitcoin and most cryptocurrencies are on the blockchain, and that makes almost all the payments made from within the wallets traceable. Thus, the security and anonymity of the payments gets compromised. With the Lightning Network, the payments are occurring outside of the blockchain, so it would be really difficult to trace the small transactions happening within the wallets. Demerits Well, there’s nothing with certitude we can say about the demerits or merits of the technology as it isn’t functional as of now, and we are just extrapolating how things might work when it’s (the Lightning Network technology) around. Though, there’s a great chance that all the enlisted pros and cons might just unravel or undergo metamorphosis as mere speculations once it is live. Below could be some of the cons of Lightning Network. Non-operational. The true test of the technology's efficiency of processing speedy payments would only be done once it’s there in practice, which the Lightning Network is sadly not at the moment. All the information we have available is only speculative in nature. Thus, we can’t jump to straight conclusions of how well the technology would be. Complexity of the channels. The seamless transactions are based on the Lightning Network channels' efficiency. However, it has still not been properly documented what happens if a transaction has to be verified by following an intricate route. The general idea suggests that if the said transaction has to go through a series of secondary channels, the transaction fee associated would only rise. Conclusion It remains to be seen whether the Lightning Network proves to be the answer to the scalability quandary of Bitcoin, but it appears to be an exciting prospect nonetheless. The Lightning technology shows immense promise of processing seamless micropayments, little to no transaction fees, and thereby helping in the globalization of the cryptocurrency. It is safe to assume that if it performs as per the claims & expectations, it would be the answers to the questions Bitcoin's problems were looking for.