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Weekly Technical Report 2018.08.27-09.02

Weekly Technical Report

As the volume of blockchain transactions increases, execution time slows significantly, resulting in increased transaction costs. For example, if someone sent you some bitcoin, it would take a few minutes to receive them, and you still have to pay a heavy transaction fee.


Faced with such challenges, it raises the question: How will the blockchain revolutionize the world? Therefore, any good idea that can solve the problem by solving this non-scalability is worthy of our attention. Lightning is such a revolutionary idea.


This article provides a brief overview of the lightning network. We will explore what it is, how it works, why it is vital, and its impact on the future of blockchain and cryptocurrency. So let’s delve into:


What’s Lightning Network

Lightning Network is just a protocol that can help accelerate and extend the performance of Blockchains. This design provides the technical capabilities that are missing from the original Bitcoin blockchain. However, it can also be implemented in any other blockchain.


In order to make it perspective, the current Bitcoin blockchain can only contribute up to seven transactions per second. Now compare it to Visa, Visa can handle 2,000–50,000 transactions per second.


As you can see, although the implementation of the Bitcoin blockchain is very secure, it lacks the ability to facilitate a common trading network. The Lightning network is ready to extend the Bitcoin blockchain to process millions of transactions per second. In addition, it will reduce transaction costs (a penny per transaction).


How Does it work

The Lightning Network is supported by a number of smart contracts that are brought together in a top-tier system based on the Bitcoin blockchain. The agreement allows for very fast transaction speeds, with very low transition costs.


To achieve this goal, both parties to the transaction follow the following procedures:


Set up a wallet with multiple signatures, including a certain number of BTCs Upload the address of Wallet to the public Bitcoin blockchain. This is accompanied by a wise contract that clearly states who the number of BTCs belongs to.


Once the payment channel is instantiated, it opens up a way for all parties to conduct unrestricted transactions between them. Another important thing to note is that the information in the wallet collection is not updated to the main blockchain. The transaction takes place in the outer chain.


After each transaction is completed, both parties will sign the balance, which will be reflected in the balance sheet. Therefore, at any given time, the multi-signature wallet will display the balance owed to the parties. A key point to note here is that the balances owed to the parties are still not uploaded to the main blockchain.


If a dispute arises or the payment channel should be locked, the contractual obligation will be terminated there and the parties will pay each other based on the share reflected in the multi-signature wallet.


Does this process seem too much trouble? Ok, if you execute it manually. The good news is that smart contracts are executed automatically and almost effortlessly under the Lightning network protocol. Therefore, when the contract expires, all of the above procedures are performed in the background in the automatic mode triggered by the smart contract.


The payment channel deployed by Lightning Network is very effective, enabling users to trade in direct mode. This is different from the usual module of the blockchain, which broadcasts transactions over the entire network (common blockchain).


Because the two parties get together and trade with each other and track payments themselves, they eliminate expensive and time-consuming mining. The Lighting Network Agreement also provides a channel for dispute resolution. If there is a dispute, the final balance sheet number will be shared between the parties based on the smart contract under the multi-signature wallet.

Advantage Of Lightning Network


Very small or micro-payments are possible and payable in minute fractions. The proportions of payment are tiny fractions with no limitations upwards; it offers limitless transactions from very small to the very highest, well applicable in modern business.


Instant settlement of payments where the BTC takes a fraction of a second from one point to the destination within the network.


Buffered network privacy that arises from the fact that not all transactions are loaded onto the main Blockchain. That only happens when the pay channel is closing out and balances paid out to parties respectively.


Disadvantage Of Lightning Network

Failure initiated by Peers: Just in case a party remains uncooperative, the transaction remains voided. The partner may have to wait beyond the usual timelines. Eventually, the payment is re-routed for settlement.

No provision to facilitate Offline Payees: Network users have an avenue to make payouts to others outside the network.


Un-ideal in cases of large payouts: The balance in the wallet may not be sufficient for settlement of large amounts of payments


Centralization of Miners: Lightning Network in a way may foster centralization of pay points.


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