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Lightning Network - What and Why

Fri, Feb 23, 18

The problem with bitcoin blockchain network is scalability. The block size in a blockchain is limited to 1MB, every block is created in every 10 Min and only 7 transaction per second. Lightning network introduced to resolve this problem, there by allowing more transaction at a time.

Lightning network(LN) can be defined as decentralised network or payment channel for instant payment which is based on block chain’s smart contract functionality. More specifically Lightning Network is an off-chain protocol for bitcoin micro payments.

LN is a bidirectional payment channel which allows transaction between two parties without needing broadcast each and every transaction.

How Lightning Network works

Bidirectional payment channel

Initially this funding is taken as input for the transaction.

At this stage either Bob or Alice can sign half-valid transaction and publish on blockchain. But who ever publishing will have to wait 1000 blocks to unlock the multi-sig address.This is the key trick of a payment channel: neither sign and broadcast their half of the transaction at all.

Bob cannot safely sign and broadcast the older commitment transaction any more, because Alice now knows Bob’s first secret. If Bob were to sign and broadcast that commitment transaction, he would immediately send four bitcoins to Alice… and he would have to wait 1000 blocks to claim his own six bitcoins. That’s a problem, because now that Alice knows his secret, she could and claim the other six bitcoins as well!. The same way Alice cannot broadcast the older commitment transaction.

Paying to third party

if Bob gives a bitcoin to Carol, he must be guaranteed to get a bitcoin back from Alice.Bob has to trust Carol to really give him the value after he sent her a bitcoin.That’s where Hash Time-Locked Contracts (HTLCs) come in.

if Bob gives a bitcoin to Carol, he must be guaranteed to get a bitcoin back from Alice.Bob has to trust Carol to really give him the value after he sent her a bitcoin.That’s where Hash Time-Locked Contracts (HTLCs) come in.

Full Version of Lightning Network - What and Why