Lightning Network Explained
The Lightning Network is a protocol built on top of the public, open, and permissionless Bitcoin Blockchain that enables instant and low cost transactions. Lightning Network enables Bitcoin to scale out as a payments rail and much more. Lightning can facilitate transactions faster than the credit card networks.
Lightning retains the peer-to-peer nature of the Bitcoin network and enables microtransactions at a massive scale.
Lightning does not store every single transaction for “forever” on the Bitcoin Blockchain. Transactions use smart contracts and are batched together. Users interact peer-to-peer on top of the chain and can settle those transactions with finality to the final chain at any point.
It is crucial to note as fact that this exists on the Bitcoin Blockchain and is a protocol built on top of Bitcoin. This is not available for use on top of other cryptocurrencies, many of which have proven to be scams. Lightning is open source and is built on top of open source software – Bitcoin.
How Much Potential Does The Lightning Network Have?
We don’t have any factual answers to how much potential the Lightning Network has or how much money is at stake or could be made. We do know that Lightning can enable and open up an entirely new world related to microtransactions.
What Are Microtransactions?
Microtransactions refer to financial transactions where rather small even tiny amounts of value are exchanged, transferred, and settled. In the current financial system there is a point of no return if you will where the cost of executing a transaction exceeds the value of the transfer itself. For example: think of trying to send someone across the world just $0.50. The cost of using a debit or credit card or wire service exceeds the actual value of what is being transferred. As a result these transfer do not happen typically.
What if that value could be transferred instantly and at little to no cost? That changes everything. People could exchange value for various types of goods and services at very low price points. The applications are endless but certainly publishing, music, video, and questions and answers come to mind.
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