What is The Lightning Network?

The Lightning Network is an improvement to scalability in the Bitcoin network. It is currently under development and undergoing tests right now. The Lightning Network works by opening a payment channel by committing a transaction to the blockchain, then a number of other transactions in that channel update the channel's funds 'tentatively' without committing it to the blockchain. At the end, the payment channel is closed and broadcasted to the blockchain in its final version.

"If we presume a large network of channels on the Bitcoin blockchain, and all Bitcoin users are participating on this graph by having at least one channel open on the Bitcoin blockchain, it is possible to create a near-infinite amount of transactions inside this network. The only transactions that are broadcast on the Bitcoin blockchain prematurely are with uncooperative channel counterparties."

— Lightning Paper

This will ease network congestion because this payment channel is not being added to the blockchain. The transactions within that channel are not public on the ledger. Instead of tracking all movement and updating the blockchain with each move of funds, it is gathering all the movement and updating the blockchain all at once.

As I discussed in my last post, using the Lightning Network requires Segregated Witness to be "voted" into effect by a majority of hash power.