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Bitcoin lightning network is coming, the competition currency will disappear?

Transaction fees for the Bitcoin network soared in the past few months , reaching a historic high of $ 30. Many people recommend the introduction of a lower transaction cost, the network is not easy to plug the encrypted currency to replace bitcoin.

High transaction costs on the chain have been doomed to certain categories of payment completely missed with bitcoin, but there are several programs are currently under development to address this issue, of which the Lightning Network (Lightning Network) may be the most viable option.


What is lightning network?

The Lightning Network is a smart contract system built on the Bitcoin blockchain that enables both parties to the transaction to make quick, low-cost payments.

Technically, the lightning network is based on payment channels, and Satoshi Nakamoto, the founder of the project, also made a similar idea earlier in the development of the Bitcoin project. In simple terms, two people put bitcoins into a multi-signature wallet, then sign the transaction to change the amount of bitcoin each can retrieve. Trading participants may close the trading channel at any time, and the last signed transaction containing the latest balance dynamic will eventually be broadcasted and written into the Bitcoin blockchain.

At a non-technical level, the lightning network's payment gateway allows direct transactions between users, at the same time they do not have to be content with their business content (just broadcast part of the deal). Users are able to trace their transactions directly, avoiding expensive and time-consuming interactions on the blockchain. If any party disputes their payment balance in the lightning network, they can send the latest valid status, signed by both parties, to the blockchain, which will not be bribed or corrupted and will be able to make an automatic decision. In other words, no one can lie or fabricate transaction data.

With a lightning network, users can trade with anyone connected to their payment gateway network in a multi-hops manner. This is a network of payment channels, not a means of accelerating transactions.

The main advantages of Lightning Network are: very low cost, instant payment (eliminating the 10 minute bitcoin confirmation time), and privacy improvements (as these transactions are not permanently stored in the open book).

Lightning Network VS low-cost competitive currency

The main reason many competing currencies are famous is that they claim to offer lower transaction fees on the chain (compared to bitcoin). The following is the average transaction fee for the partially encrypted currency network on December 27:


Bitcoin: $ 22.99Ethereum: $ 0.33
BCH: $ 0.05
Litecoin: $ 0.04

Although there are already some competitive currencies that offer lower transaction fees on the chain, the payment costs on the lightning network are even lower. Two authors of the White Paper on Lightning Networks have said that the transaction rate in this bitcoin second-tier solution is almost zero.

With the exception of lower costs, the transactions in the lightning network take place almost instantaneously, meaning that there is no need to wait for new blocks to be excised before they can be confirmed.

Lightning network can also bring a higher anonymity, but this area still need a lot of work to gradually improve.
Perhaps the most important feature of the lightning network, compared with low-priced competitive currency, is high liquidity, low volatility and long standby performance (project endurance) provided by Bitcoin assets. Most people still prefer bitcoin over competing currency, which is one of the reasons Bitcoin charges too much.

Payment channel costs?

The premise for using bitcoin lightning networks is that users must have at least one channel open. After all, lightning network payments can not be made without the payment channel being open to anyone else. Instead, the chain can only be traded.

In addition, you must first close the channel for trading on the chain, otherwise there may be controversy, or there may be a situation where an address is not connected to the lightning network node but can be arbitrarily added.

The good news is that Bitcoin users can open the lightning network channel with the other party while making the chain payment. This means that users can enjoy the advantages offered by payment channels to both parties after sending a transaction. The transaction is sent in the same manner as usual, but future payments on the lightning network are almost zero-cost.

Another possibility is that bitcoin wallet providers will pay users. The wallet provider may collect some important user information and prevent the same person or organization from opening a large number of different channels on their platform. Those who want to remain anonymous should have their own payment method.

If the user is willing to wait for a while while the transaction is being written to the block, they can pay the lower transaction fee on the chain. Those who are willing to wait when opening a payment channel also enjoy low-cost benefits.

Another possibility is that Litecoin becomes a viable mechanism to build a (Bitcoin-based) lightning network path at a lower cost. One thing that people often overlook when it comes to lightning networks is that users running lightning network nodes in different blockchains can use it to deploy decentralized exchanges. If a lightning network user has already set up a channel in the Bitcoin network, they can add Litecoin to the channel through an intermediary who also runs the node in both blockchains.

In addition, the sidechain could eventually become an effective way to add bitcoin to the lightning network. This method is similar to the Litecoin option described above, but with an added advantage - the sidechains can be priced in bitcoin.

There are still many improvements to the lightning network in progress and end users may not need to interact frequently with the Bitcoin blockchain.

Finally, the lightning network itself can effectively reduce the transaction costs on the chain, because some payment types are able to get rid of the Bitcoin blockchain - which achieves the purpose of reducing the space requirement of the block.

Common to all blockchain

You know, all the blockchain faces the same problem with transaction processing power. Bitcoin transaction fees are the highest, as this is the most trusted and the longest operating cryptocurrency network.

According to data provided by OnChainFX, bitcoin miners have received over $ 11.5 million in transaction fees over the past 24 hours. The cryptocurrency miner, ranked second in revenue with a $ 612,000 fee over the same period, came from the Ethereum community. In addition, other cryptocurrency miner's fee income did not exceed 90,000 US dollars.

The increase in user base of the blockchain leads to increased costs, while the cost of running the full node is reduced again - something that is not possible in real life. If too many people avoid bitcoin high transaction costs by using Litecoin, eventually they will only be able to move to other chains if they become congested.

A similar scenario has also appeared in the Ethereum network. The blockchain transaction was low at the beginning of the year and did not take too long to confirm, but the chain transaction fee on the network rose from $ 0.1 to $ 0.71 on December 14 due to hot ICO and CryptoKitties sales.

The conclusion is?

As the lightning network has not been successfully deployed in the Bitcoin blockchain, it is difficult to predict the short term impact on the countercoin. As for how this network develops, we will wait and see, especially the premise of opening the lightning network channel is the need to pay a high cost of the chain.

From a long-term perspective, it is very likely that competitive currency will not be necessary for a lightning network or similar project, but it is still unknown how long it will take for such projects to mature to maturity. As noted above, competitive currency with low transaction fees on the chain can also be useful in the short term, perhaps helping to make the lightning network popular in bitcoin.