Ever since its conception in 2009, Bitcoin has dominated the cryptocurrency space, being the only cryptocurrency to boast a five-digit price tag. According to the Bitcoin white paper by Satoshi Nakamoto, the purpose of the digital currency is to serve as a “ Peer-to-Peer Electronic Cash System.”
However, what Bitcoin has become today suggests otherwise. Instead of using Bitcoin as a transaction medium for our day-to-day purchases, Bitcoin owners treat it as a store of value and are rather reluctant to spend their investments. In their eyes, Bitcoin and other altcoins are “expanding assets” as opposed to the intended “digital currencies”. Over the years, Bitcoin’s potential to replace conventional fiat currencies and revolutionize the modern financial system has fallen away somewhat.
We cannot deny that as the first ever cryptocurrency, Bitcoin has its own share of flaws – slow transaction speeds and high transaction fees are among the few of the shortcomings of Bitcoin. This deters consumers who find it rather inconvenient to use Bitcoin for their daily expenses as the transaction fees can sometimes be way higher than the cost of the actual product that they’re trying to purchase. Take micro-transactions, for example: If you are paying for a cup of coffee that is worth $4 with Bitcoin, the transaction fees can go as high as $20, making it an inefficient way of paying for goods.
Introducing the Lightning Network
Recently, there have been plans in the pipeworks with the intention of bringing Bitcoin back to the original purpose that it was created for. The lightning network that was introduced back in 2016 is now in its Beta-testing phase, and it aims to tackle the scalability issue that Bitcoin faces.
To understand the scalability problem, we have to dive into the blockchain – Bitcoin’s blocks are limited to 1MB in size. However, as cryptocurrencies face mainstream adoption, the number of transactions is increasing exponentially, and the current block size is by no means sufficient to process the massive number of transactions taking place on the Bitcoin network.
Therefore, with the implementation of the lightning network, what we are doing is essentially adding a smart contract script into the Bitcoin network that would open private payment channels between an individual node and all of the other nodes that they transact with. For each one of these private payment channels that they are part of, the nodes would have one channel open to the Bitcoin blockchain.
As a result, the nodes can transact amongst themselves in their private channels, but only the final outcome of the transaction would be broadcasted to the blockchain. Because of these clusters of private channels, miners would only have to process a fraction of the transactions that they currently do. Hence, in theory, the lightning network makes peer-to-peer transactions more efficient, scale-free, and low cost.
The lightning network could most definitely serve as a game changer for Bitcoin and act as the belated pièce de résistance that could give Bitcoin the edge that it needs to secure its position as the #1 cryptocurrency in the world. After its deployment earlier this month, the lightning network is now in its development stage and will hopefully see widespread adoption in the near future.