Leveraging Layer Two Solutions for Aspera’s Bitcoin (i.e., Lightning Network)

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INTRODUCTION

As it stands now, there is no other cryptocurrency in which people use as much as they do Bitcoin, and thus, it has gained reputation as a sound asset for keeping value as well as transacting. However, one of the main problems which it has is scalability. It has been observed that an average of seven TPS is a rate which has been the highest for years for bitcoin and it cannot support the increasing number of users worldwide. Therefore, this leads the congesting of the network resulting to increased transaction costs and longer confirmation periods.

To solve these problems, developers have come up with Layer 2 solutions. Layer 2 includes the design of new protocols that are implemented on top of Bitcoin and which allow for quicker and less expensive transactions without peril. These solutions are in the form of off chain meaning that the majority of the transaction activities are dealt with outside the main blockchain and only important records for the transaction are kept in the Bitcoin ledger.

The Lightning Network is one of the most widely known Layer 2 scaling solutions on the Bitcoin network. Announced on 2018, it was focused on facilitating many micropayments, by connecting users through payment networks. Such networks permit users to make transactions instantaneously and cheaply. In this paper, we…will investigate the advantages and operation of Layer 2 solutions such as the Lightning network in extending the capacity of Bitcoin

KEY BENEFITS OF LAYER 2 SOLUTION FOR BIT

• ENHANCED SCALABILITY FOR BITCOIN:

The advent of Layer 2 solutions like the Lightning Network are revolutionary when it comes to the scalability of the Bitcoin network, allowing for thousands of off-chain transactions in a second. This system allows users to establish direct payment channels so that transactions do not have to be posted in the main blockchain. Therefore, the users only require an on-chain transaction to open the channel and subsequent transactions can occur in these channels without any on-chain collateral.

This development maintains a good amount of data in the main blockchain enabling an efficient transaction brush. These are the enhancements that are needed to make bitcoin a reliable means of payments especially at this time when it can not measure up to payment processing service providers like visa and master card in terms of the transactions per second.

The increased scalability through Layer 2 solutions also allows for the use of Bitcoin for microtransactions like buying a cup of coffee which used to be impossible due to costly service charges and long confirmation delays. These additional qualities make it easier for Bitcoin to achieve its initial concept of being an electronic currency operated directly between users’ computers without going through intermediaries.

• REDUCED COST OF TRANSACTIONS:

The other major benefit of Layer 2 solutions is the decrease in the transaction costs incurred. These fees have tended to be a source of discomfort in bitcoin, especially when the network experienced congestion. On-chain transactions warrant the intervention of miners in order to be completed. This often leads to users engaging the services of miners by paying extra amounts to have their transactions done faster during busy periods.

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In the Lightning Network, a considerable number of transactions are not subject to any costs as they are carried out off-the-chain. Cost is incurred only when channels are opened to allow users to transact and when they are closed, there are no costs associated with transactions occurring within that channel. This system is very cheap and makes the Bitcoin currency practical for transaction and even making small payments that would be uneconomical if charged at the exchange rates used in conversion.

Within a framework of Layer 2, more pleasant and flexible methods of using the Bitcoin network will continue to be introduced and consequently talon wider requirements with various purposes. Lower transaction costs present opportunities for utilization of Bitcoin in more sectors like e-commerce, remittances, and many others where it has not been actively in practice.

• IMPROVED TRANSACTION SPEED:

This is another area where Layer 2 solutions have a good advantage as well. As is the case with most bitcoin transactions, where a minimum of 3 confirmations is required for a transaction to be secure, such a confirmation takes from 10 minutes to even several hours based on the congestion of the network. These delays make bitcoin less appealing to customers in cases where a speed of transaction is of the essence, for example, in the case of retail purchases.

There is virtually no wait time for the completion of transactions as they are almost instant with the lightning network. They do not require any confirmations from the main blockchain, as this happens in an off-chain environment. This allows for quick payments which facilitate the use of Bitcoin for everyday transaction.

Thus, the speed at which payments are processed gives an upper hand to the utilization of bitcoin above other payment channels. Be it online or in-store transactions, the increased speed of transactions makes it easy to use bitcoin as it creates no inconveniences.

• ENHANCED PRIVACY AND SECURITY:

Apart from factors like scalability, cost, and speed, Layer 2 solutions like the Lightning Network do not compromise the privacy aspect of Bitcoin users. What’s more, they develop security and privacy more advanced than what is currently on the Bitcoin network. Most transactions that occur on a blockchain are visible to anyone who has access to the distributed ledger since it has been posted for everyone to see. Nevertheless, transactions done in the Lightning Network are not done on the Bitcoin blockchain and as such, only the setting up and tearing down of the payment channels is what gets shown on the ledger.

This capacity to settle transactions over the network allows third parties not to be able to see any transactions which have been carried out, increasing the privacy of the users. Also, Privacy features provided by Layer 2 solutions do not compromise the completeness of the primary Bitcoin blockchain. Because the underlying transactions occur within the main chain and not off chain, the security of the bitcoins is rather formidable, and therefore they do not lose their funds.

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These benefits explain why Layer 2 solutions will appeal to entities which tend to carry out transactions in a more private manner. Thus these features also raise whose use of Bitcoin for funds’ remittance is safer and less privacy intrusive especially where conventional finance is prone to be target oppressive or monitoring.

CONCLUSION

Lightning Network solutions are very important for the improvement of Bitcoin’s scalability and issues of cost, speed, and transaction privacy.

They facilitate a transaction much faster and at a lower cost while maintaining the safety of the underlying blockchain. Such solutions show that the prospects of Bitcoin as a worldwide payment system will increase as further assists its functions as an electronic cash system based on the peer to peer structure.

With respect to this, Bitcoin will continue making it more possible for its users to use the cryptocurrency and hence be in competition with traditional methods and other cryptocurrencies.