Home Blockchain 101 What is lightning network on bitcoin protocol: Beginners Guide.

What is lightning network on bitcoin protocol: Beginners Guide.


Lightning network has been a common phrase in the crypto world for almost a year now. The idea has been floating around for a while now since 2015 but was introduced on bitcoin testnet towards end of 2017 and and has continued to grow. In simple terms, the lighting network was created as second layer on top of bitcoin network that would facilitate faster transactions. If it works as envisaged, it would essentially serve as a payment network ensuring that transactions speeds are increased making bitcoin more applicable for making micropayments.

Scaling debate: A brief history

Bitcoin current processes about 7 transactions  per second and has a limitation of 1MB block size. Currently users have to wait for about 10 minutes before a transaction is confirmed. There has been intense debate on the bitcoin community how to solve the problem of scalability. A payment network like Visa processes thousands of transactions per second. The prevailing thesis therefore is that: for bitcoin to gain more adoption as payment network, it needs to processes transactions faster and be used to make micropayments easily. But in order to do that, it would require increasing the blocksize. However, in cryptocurrency there are ways to change the protocol rules through soft and hard forks. In 2017, Bitcoin split leading to formation of Bitcoin cash with upgrades to higher transactions speeds. Bitcoin cash split in November 2018 leading to formation of Bitcoin SV. So far the original bitcoin still remains the mostly widely adopted. The debate for increasing block size has therefore been to increase transactions per second. However, lightning network is coming up as  possible solution that could facilitate without changing the main bitcoin blockchain.

bitcoin transactions, source: blockchain.com/en/charts/n-transactions


Lightning network acts as second layer on top of bitcoin blockchain that would serve the role of faster transactions without having to change the main bitcoin blockchain. With a lightning network, transactions confirmations does not need to take place on the main blockchain thereby reducing the load on the main blockchain. Currently, any transaction on the bitcoin blockchain has to be confirmed by upto 6 blocks deeps in order to avoid chances of double spending but this contributes to the slowness of the network. With a lightning network, people would be able to enter into off-chain payment channels that would be faster while still not compromising on security features of the bitcoin.

This video above has a simplified explanation of how the lighting network works.


However, the network faced some criticisms early on as critics argued that it would lead to centralization as few large nodes would be necessary for transaction confirmations; essentially acting as payment gateways/channels. Nodes on the lightning network would serve as miners in the bitcoin network.

Some channels would have more control over transactions if they are being used  by many people. people incentivized enough can pool together and create mega payment channels and watchtowers to constantly monitor the transactions. This could mean outsourcing that to a few single parties, like in the case of mining.

However, it is important to note that testing of the network is still ongoing and the software at best is still at beta mode. Furthermore, currently, there is no much incentive to run a lighting node, therefore with time, more nodes and channels will likely enter the market, possible leading to better innovations. However, the real test will come with testing the merchant adoption of the network.

Ideological debate

Also, it is important to always think about why bitcoin was created in the first place. For some people, low transactions speeds is part of the network and was created that way by design and therefore believe bitcoin to be an alternative to current monetary system and not meant to be used for day to day transactions like buying coffee. The other camp believes bitcoin should first and foremost serve as an efficient payment channel that is better that existing channels. Whatever the case, if lighting works as envisaged, then there is no doubt it will lead to greater adoption.

Further reading




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