Bitcoin is ready for mass use
Lightning Network gives Bitcoin the ability to scale to mass use without affecting the performance of the main network.
Jonny Ji and Genny Díaz ·
There is no single Bitcoin rabbit hole. Understanding Bitcoin means realizing that every answer raises a new question, which fuels the learning process and the journey down yet another rabbit hole.
Bitcoin did not appear out of nowhere. It was the product of the evolution of technologies and virtual currencies in the final decades of the 20th century, driven by the Cypherpunk movement of the 80s and 90s.
Personally, I am very interested in the adoption and everyday use of Bitcoin. It is true that many see it only as a future investment, an asset they hold hoping its price goes up. But when we understand that Bitcoin is a currency and a payment system, we realize that its adoption depends on mass monetary use and that, in turn, its mass adoption depends on the scalability of transactions.
It is no secret that Bitcoin’s base layer is not scalable, and that is by design. When it was created, security and decentralization were prioritized over transaction speed. To address this lack of scalability, second-layer solutions are built on top of the main network. One of the most important is the Lightning Network. I believe the development and spread of this protocol could be the key to wider adoption of Bitcoin in everyday use.
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What scalability means in Bitcoin
Bitcoin is the sum of many earlier technologies that come together to create “a purely peer-to-peer version of electronic cash that would allow online payments to be sent directly from one party to another without going through a financial institution” (Bitcoin White Paper).
Because it is a decentralized system, a larger number of users can slow down the network’s processing. This is because Bitcoin’s consensus algorithm works with a predetermined block size and adjusts the proof-of-work difficulty according to the number of participants.
These parameters directly affect the time it takes for a new transaction to be added to the general ledger. Likewise, slower confirmation times drive network fees up.
To fulfill its purpose, Bitcoin must support intensive use of the currency as an everyday means of payment, and this is where scalability becomes relevant.
In Bitcoin, scalability refers to the network’s performance as transaction volume and the number of users grow. The system needs to be able to adapt to massive demand without its performance suffering. This is where second-layer solutions like the Lightning Network become crucial.
Second-layer payments
To solve the Bitcoin scalability problem, one of the most interesting alternatives is the Lightning Network. This scaling solution relies on the same SegWit format to carry out bitcoin transactions within a network of payment channels.
The Lightning Network reduces payment times and lowers on-chain transaction fees. This is possible because the protocol only records two transactions on the Bitcoin blockchain: one that opens the payment channel and one that closes it.
This means that not every Lightning transaction has to be recorded on the blockchain. Still, payments are backed by special transactions that are recorded on the Bitcoin blockchain, thereby inheriting its security and decentralization.
In other words, this kind of protocol is based on the idea that very small payments, such as paying for a coffee, do not need to be recorded forever on the Bitcoin blockchain. Making these small payments through second-layer networks such as the Lightning Network reduces transaction volume on the main chain, removing bottlenecks and increasing Bitcoin’s scalability.
Bitcoin’s mass adoption goes through the Lightning Network
The Lightning Network protocol is a new way to make payments quickly, almost instantly, and easily. It can handle a volume of transactions per second that exceeds existing traditional payment systems, and it is compatible with the Bitcoin network without major modifications.
It is a system that enables micropayments, created to let users manage their bitcoin funds reliably and securely, without having to delegate custody to a third party.
I believe its development and spread are what Bitcoin needs to reach mass use as money and as a payment system.
Editor-in-chief: Genny Díaz