The Importance of Lightning Network for Bitcoin

Lately, I've been diving into some technical stuff about Bitcoin, and honestly, I’ve got no regrets about my choice to get into this space. Spending the last month learning about Bitcoin has been one of the most rewarding experiences for me. I kept seeing the term Lightning Network (LN) pop up in discussions here, but I didn’t really dive into it because it seemed too complicated. To my surprise, it turns out LN is one of the coolest aspects of Bitcoin that I've come across, and now I totally get why so many Bitcoin fans rave about it. I even chuckled a bit when I realized how much people are into it, although I found it hard to believe at first. So, what’s the Lightning Network all about? Basically, LN lets folks using digital wallets send BTC to each other without any fees. It works by creating a second layer on top of the Bitcoin network which enables off-chain transactions. When two parties want to use LN, they just set up a payment channel where they can both put a certain amount of BTC into a shared multi-signature address. Opening this payment channel is done on the blockchain, keeping everything transparent so both users can see the BTC that's been deposited. There’s also a balance sheet that tracks the amounts both parties have put in. When someone decides to send a specific amount, it’s simply deducted from one side and added to the other. And the best part? There’s basically no limit to these transactions, so they can keep going.

Yes but this is not totally true, this is only true if you are sending to the person that you open a channel with directly. If you are sending to other people that does not open channel with you, you will pay small fee. The more of other people channels that you use for the payment, the more the fee. Because of the limited in the maximum amount that you can send in using each channel, that is why lightning is not to good for huge payments. Just good to use it for small payments. If you want to use lightning wallet, there are many lightning wallets. You can go through this thread to see some of the good lighting wallets Lists of open-source bitcoin lightning wallets

You can be charged by route nodes that connects channels. I say can cause for some it's free while for others you pay a fee. There are limits to how much you can send based on how much you funded the channel with and how much you've spent from it. Also what you described is an uncooperative close. Usually if both parties are online, both can sign for the channel to be closed and the funds will be transferred onchain.

While LN development focused on Bitcoin network, the technology can be used on altcoin and you could even perform atomic swap between 2 coins (e.g. LTC and BTC) on LN. Aside from what @_act_ said, you still need to pay fee for on-chain Bitcoin transaction which is needed when opening or closing the LN channel.

OP, I'm not trying to offend you nor am I accusing you, but the post looks like it was copied somewhere and merely pasted. Plus the title states LN and, "its great importance to Bitcoin network", but the part with "great importance" is not included in your post. BUT I ask everyone. What is actually the Lightning Network's great importance? Perhaps we truly haven't discovered what it is, or what it could be?

Personally  I think lighting network still needs lots of improvements. Thee interface is  very complicated,  even veteran bitcoin users get confused with terms like inbound capacity, outbound capacity, channels, routes... I think there are some wallets which are making LN easier, but I don't think LN is ready to be used for large amounts and by most people

The idea of a second layer that allows instant Bitcoin transactions with near-zero fees is extremely appealing, but the truth is that in practice, things are much worse in lightning. In Bitcoin, you can be a user by simply creating an address and checking its balance on a lightweight client. That's all you need to do. If you run a node and do that, even better, but it isn't a prerequisite. In lightning, not only does running a full node become a requirement, but you need to run it 24/7. You can't pass a lightning address and go offline. Payments won't arrive if you're offline. Then, there's another partner to account for. What if they go offline? Or what if they decide to close their channel with you? This rises the overall transaction cost. Lastly, you can't be confident that your payments always complete. There may be routing failures on the way. This is another important distinction with on-chain transactions, where you can always be certain it will confirm eventually. So, in my opinion, it's not that the network lacks improvements. It's fundamentally structured in such a way that it's difficult or impractical for it to spread and grow.

I am also a total noob in Bitcoin, but I have developed great interest in it and I have been reading alot. With what i read about LN, transactions on the lightning network are not entirely free. When using the lightning network, only two transactions are recorded on the blockchain and they are: 1. While opening the payment channel on the lightning network and 2. Closing the payment channel on the lightning network. Although transactions in-between are feeless, there are fees attached to the two transactions stated above which are recorded on the blockchain. I read somewhere that the lightning network has a mechanism that protects its users from fraud initiated by one party in the payment channel. For example, if there are two parties in the payment channel who both made a specific deposit, then one party tries to back out without keeping to his own part of the bargain, the whole amount deposited will transferred to the other party who didn't try to cheat. This was supposed to serve as a punishment to those who try to cheat. How do I reconcile what I read with your statement above. I will be glad if you clarify me on this issue, I am new here and still learning.

With all these technical aspects being mentioned, it's surprising how so many people boast about it(LN) whenever there is congestion. Could it be that so many people have mastered it so well? And again, can such complexity which somehow breaks the rules of Blockchain technology affect the BTC chain at some point?. Pardon me for asking this, but do you have any idea of what is hindering the further development of LN, or is the Bitcoin community satisfied with the one on ground?. Thanks for pointing that out. NOTED!

I think we need additional second layer solutions in my opinion. We already have liquid as well. It is easier to use, but more centralized. I think other solutions will show up.

Probably rather the opposite, for most cases. It's interesting to try out at first, but the deeper you dive into it, the more apparent its flaws become. I'm slightly more optimistic than BlackHatCoiner though in that I believe that those flaws are not necessarily fundamental. That's the neat part, it can't. While changes on the BTC base-layer affect LN, LN development does not affect the BTC base-layer. There's plenty of development going on in the LN ecosystem, it's just something that takes time. In the end you not only have a complex problem but also multiple implementations with slightly varying feature sets that still need to retain compatibility with one another.

If they boast about LN without mentoing on-chain TX fee to open/close LN channel, then IMO they're not master or expert of LN. No. If on-chain TX (which created for LN purpose) violate Bitcoin protocol/rule, it's simply ignored and won't affect Bitcoin network.

It's called a penalty. When your partner tries to cheat, they publish one of the earlier commitment transactions (not the final), which has been revoked. Revocation is an anti-cheat mechanism. Lightning nodes monitor the blockchain to check if their partners have published a revoked commitment transaction, and if they have, they can claim all the channel's funds before the timeout; if you fail to claim the funds before that time, which can be hundreds to thousands of blocks, the other partner's attempt to cheat will be successful. You can issue penalties without running a full node, by using watchtowers, but this is trust-requiring. Essentially, you're entrusting that someone else will do the task described above, who's running a full node.

The UX does need improvement, but the developers have done it that way to build it with decentralization as the main feature of the network. It could be debated that a hub-and-spoke model would have been better to bootstrap the network before making it more decentralized later. But that could also have its own complications because it's probably much harder to decentralize a network than centralizing one. Mainly custodial.

Could this trust be compared to entrusting someone running Bitcoin full node for securing the network while only sending and receiving Bitcoin transactions? If yes, is it a big risk not to run a lightning full node while using the LN.

It's not the best analogy, because in the case with using a third-party full node to sync your wallet, there is practically no incentive to cheat and serve you false transactions. It's not in their interests, unless you're running a big company, like a popular anonymous swap service; it's the kind of service I'd expect such behavior to be incentivized, but if you were the operator of that service, you'd be running your own node in the first place. If your partner is the watchtower without your knowledge, theoretically they can take your money without you noticing. This can't happen in a lightweight Bitcoin wallet.

Thank you for your explanation, although you are going more deep. I believe with time, I will have a full understanding of what you are saying.

Yes LN is indeed of great importance to Bitcoin. It's how everyday bitcoin payments are done. Though as some people have pointed out, as great as LN is, there are tradeoffs and potential pain points for some users. Ideally in a decade or two, by the time bitcoin payments start taking off, we'll not only have LN but also other layer 2 networks so that people can choose the best option for their own use case, and ideally wallets that wrap all these L2 solutions so that a user can simply choose which option to use. But yeah for lots of use cases LN is pretty incredible. As long as you know a few basic facts like you need to be online to receive (in general I don't think that would be a problem for most use cases) and you need inbound capacity to receive (more problematic for some use cases) and I guess you want to have backups of your channels transactions. Or for some people (honestly probably most people will choose this) it'll just be better to treat LN as a checking account at a bank and use a custodial LN wallet and not worry about any of these things.

You're welcome. If you're interested to learn more about LN, I fully recommend this book: https://github.com/lnbook/lnbook. This is a great problem, actually. Bitcoin users are used to backing up a seed phrase, and now you're asked to do frequent (automatic) backups, which are a lot more probable to fail with a disk corruption. It's just that relying on custodial LN to save the day is hypocritical. The entire purpose of lightning is to respect self-custody, and most people simply disregard this, reasonably; setting up a lightning wallet properly is a pain in the neck.

The Bitcoin network would definitely benefit from using the Lightning Network as a second-layer protocol to enable faster and more effective transactions, which could lower transaction costs and times as well as increase network scalability by allowing more transactions to be completed. Because the Lightning Network processes the majority of transactions, it offers increased security and privacy to Bitcoin users. However, before the Lightning Network is widely used, a number of possible security flaws must be fixed. This is still in the development stage.