This is an opinion edit by Yuya Ogawa, software engineer and co-organizer of the Diamond Hands community.
This article is based on the report “Understanding Lightning” produced by Diamond Hands Community, the largest Lightning Network community in Japan. This report is intended to provide an overview of Lightning’s technology and ecosystem for non-technical readers.
What’s special about Lightning Network?
Bitcoin was introduced into this world over a decade ago to enable peer-to-peer payments without the need for a trusted third party. To maintain this censorship resistance, Bitcoin limits throughput to 1M vBytes per block every 10 minutes, making it easy for anyone to run their own node.
The Lightning Network is a Layer 2 technology built on the Bitcoin blockchain that enables faster and cheaper payments, vastly improved scalability, and greater privacy without compromising censorship resistance and decentralization. It will come true. In this article, we’ll leave the technical details for another day and focus on Lightning’s censorship-resistant and scalability properties.
Bitcoin scales by building layers on top of the base chain
Decentralized and censorship-resistant
Similar to Bitcoin, Lightning users can run their own nodes and manage their own payment channels. This is in stark contrast to the majority of emerging Layer 2 technologies in the broader crypto ecosystem.
For example, Ethereum’s rollup exists on-chain as a single on-chain smart contract that stores state for all users — as opposed to thousands of separate payment channels in Lightning’s case. In the case of Ethereum, operator nodes are responsible for managing and updating this state, thus introducing a vector for censorship and abuse. Even if Ethereum and Solana were well-decentralized and censorship-tolerant networks, layer 2 users could be affected if smart contracts or operator nodes were censored or abused.
In Lightning, each user creates a payment channel to create a large web of payments. So even if a user is censored or abused, the rest of the network will still work. There are legitimate concerns about the emergence of major hubs (popular nodes that attract many payment channels) and vulnerability to censorship, but even in such cases, users will avoid these nodes if necessary. You are free to create alternative payment channels for This censorship-resistant dynamic enabled by Lightning’s decentralization is unmatched by most other Layer 2 technologies.
highly scalable
Payments in Lightning typically reach their destination through multiple payment channels. We typically see payments routed through 4 or 5 hops (routing nodes) or less. Assuming each hop takes 1 second, the payment will complete in 4-5 seconds. If your payment requires zero hops, i.e. if you share a payment channel with your destination, it could be settled in a fraction of a second.
Fees are typically around 0.1% of the payment amount, so a $1 payment can cost you 0.1 cents. For zero-hop payments, there are no fees. Throughput for each node is limited, and Lightning Network Daemon (LND) benchmark results suggest that the nodes can quickly handle 50 transactions per second (tps) (see details here). However, as noted in the report, software optimization should allow this number to reach 1,000 tps. Additionally, the network can process payments in parallel, so if you have 1,000 pairs of nodes all working at 1,000 tps across the network, you will be running 1,000,000 tps across the network.
Lightning Payments Beats Other Blockchains and Visa Networks
Routing node, at your service!
Just as miners are incentivized by transaction fees and newly minted coins in proof-of-work mining, nodes that transfer payments via Lightning are incentivized by routing fees. A competitive market for hashing provides security to the Bitcoin blockchain. A competitive market for payment routing results in cheaper and more reliable payments with Lightning.
Routing nodes earn a fee each time they transfer a payment, so naturally they aim to route as much value as possible. However, mis-pricing liquidity can lead to unbalanced channel capacities and routing failures. This benefits no one, including the routing nodes involved. To maximize revenue, routing nodes attempt to balance channels to improve payment success rates and settlement times across the network. More routing nodes means more routes that can be used as alternatives, making the network more reliable.
Routing nodes keep Lightning decentralized and censorship-resistant.
Overview
The Lightning Network is highly decentralized and censorship-resistant because it relies on the Bitcoin blockchain, which allows users to create new payment channels at will. Additionally, just as the competitive marketplace for mining brings layer 1 security, routing nodes compete with each other to provide stable and competitively priced payment transfers in Lightning. As envisioned by Satoshi Nakamoto over a decade ago, Bitcoin enables unreliable payments. The Lightning Network is an attempt to significantly improve its scalability without compromising these fundamental values.
This is a guest post by Yuya Ogawa. Opinions expressed are entirely his own and do not necessarily reflect those of his BTC Inc. or Bitcoin Magazine.
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