Lightning Network 101

lightning network 101

Lightning Network 101

What is the Lightning Network or Trust Channels?

In the mid-nineteenth century, the easiest and fastest way to communicate a message over a long distance was via Telegram. In order to do this, you get on your horse or send a messenger to the local post office. From there, you fill in a form and pay for your message (per letter). So now you have just spent a considerable amount of time, money and effort.  Next, the person operating the telegraph machine will relay that message to the nearest post office or telegraph machine location. Finally, the postman will either deliver the message or the receiver will collect it from the post office. This may only be once a week or a month.

As you can see, it is a very inefficient system and is very expensive because of the number of hops. This results in the system to be used only for important messages and not everyday chit-chat. Bitcoin is very much similar. It is not meant to be used as a direct payment mechanism for small expenses, but rather to act as a settlement ledger.  So the second “layer” can handle small transactions which we can class as “unimportant”. A sort of add-on to the bitcoin layer. Two parties can take their transactions “off the chain”, but still enter the result on the Bitcoin blockchain.

Trust Channels

Essentially, users are creating trust channels that will eventually settle on the bitcoin blockchain once the channel is closed.

These trust channels can exist for any period of time and because they are between two people, the fees will either be extremely low or won’t exist at all. You can, therefore, send or receive small amounts like R5 or R10 for no transaction cost or less than what matters anyway.

The lightning network is a sort of carrying around wallet in which you have R500 or a R1000. And Bitcoin is more like a safe with R500k which you can still move but is less mobile due to security precautions you will need to take. (you also don’t need a rottweiler and a gun to protect your wallet)

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