Bitcoin is in the process of deploying the Lightning Network. The new protocol helps the cryptocurrency handle more transactions, speed up confirmations and reduce costs incurred by users when sending and receiving bitcoins.
Low speed, high transaction fees and poor scalability have been prime target points for anyone wanting to prove Bitcoin lacks potential to be the next payment method of choice for the global population.
Such attacks have not been without merit. The Bitcoin network until now could only facilitate about seven transactions per second. That capacity pales when you consider that Visa confirms over 50,000 transactions per second.
Over the years, Bitcoin fees skyrocketed and confirmation times extended to hours as users competed for limited capacity. These constraints to transaction confirmations were worsened by the slow process of achieving scaling consensus among the Bitcoin community, as no central authority manages governance.
In reaction to the problem, developers designed alternative blockchains with faster confirmation times, lower fees and better scaling mechanisms. The growing list of alternatives to Bitcoin that promise a better user experience in this regard includes Ethereum, EOS and Aeternity.
Bitcoin still maintains the longest, most secure, and fully decentralized and immutable ledger. It also has the largest network and stores the largest amount of user value. Therefore, the need to scale has been great within the wider cryptocurrency community.
On the verge of change
Finally, 2018 is the year when everything has been put in place to enable Bitcoin to transact up to millions of payments per second. Developers have been laying the groundwork for massive scaling since the middle of last year after consensus was reached on the structure of two critical scaling protocols—Segregated Witness (SegWit) and the Lightning Network.
SegWit, which was adopted by the network in August 2017, has the impact of shrinking the amount of transaction data that goes into the blockchain. It creates room to include more transactions within each mined block or batch of transactions that gets recorded every ten minutes.
Some reports estimate that SegWit creates close to 60% more room in each block. Increasing numbers of players within the space are building and running implementations of the scaling solution. Currently over 30% of Bitcoin transactions are carried over the SegWit protocol.
SegWit provides another benefit to the Bitcoin network. It makes it possible to implement additional scaling solutions. By fixing the problem of transaction malleability—or the ability to alter transaction identification—SegWit makes using the Lightning Network possible.
The need to have every transaction secured on the blockchain clogs and delays the system. The Lightning Network protocol removes the need to store every Bitcoin transaction on the blockchain. It allows users to create payment channels that run on smart contracts. They can then send and receive instant payments without going through the blockchain.
The only transactions settled on the blockchain are the ones that create and close payment channels. Users can create as many channels as they want and can keep them open for as long as they agree.
The blockchain then only serves to execute the smart contract that directs a payment channel between two or more users. If there is a disagreement, then the smart contract will also step in and arbitrate.
The Lightning Network makes the bitcoin network able to facilitate as many transactions per second as needed.
Users will only pay fees for opening and settling payment channels. Fewer transactions will need to be added to each Bitcoin block, which will once again make the cost of using the cryptocurrency almost insignificant.
Four entities have been working on implementations of the Lightning Network. First, on March 15, Lightning Labs, one of the companies working on the project, released Ind 0.4, the beta version of their implementation. Ind is written in the Go programming language.
Second, blockchain solutions company Blockstream is working on its version called C-lightning, written in C++. Third, French company ACINQ is also making available a Scala programming language version called Éclair. Finally, another Lightning Network implementation attempt called Thunder is a project created by Wallet service company Blockchain.info.
As soon as a larger portion of the network adopts these two scaling solutions—SegWit and the Lightning Network—we will experience a turbocharged Bitcoin, maintaining its relevance in a space that is becoming crowded with newer cryptos.
Rupert Hackett is the co-founder of Bitcoin Australia, and has a wealth of experience with Bitcoin and Cryptocurrencies, including the world’s first Masters in Digital Currencies. He bought his first bitcoin in 2011, and in 2014 immersed himself in the crypto world with Bitcoin Australia and angel investor fund Dominet led by Domenic Carosa.
Quote: “I really think Bitcoin could change the world.”