When Bitcoin debuted in 2009, everyone was excited about how this disruptive technology would change the game of moving money from one part of the world to another over the internet. Bitcoin was supposed to allow “Instant payment” around the world, but later the scene soon changed. As more and more people started using it, the time it took to confirm transactions began to increase, leading to slower transaction cycles and increased costs. There were times when fees skyrocketed to an all-time high of over $30 per single transaction. This made Bitcoin unreliable for microtransactions because no one would want to pay fees that were sometimes much higher than what they are actually shopping for. Over the period of time that this problem became manifest, the Bitcoin developer community proposed several solutions to tackle this issue. One of such solutions was the Lightning Network.
What is Lightning?
Simply put, Lightning is a technology which allows faster and cheaper Bitcoin transactions by creating separate and private layers on an inter-party basis on top of the blockchain. This private layer or channel is governed by rules that have to be signed by both parties before any transactions can take place. However, these transactions are then recorded on a local ledger and do not go to the main blockchain. Another set of rules which define a termination date and time after which the transaction record will go to the main blockchain ledger are usually established within the private channel.