Despite bitcoin’s impressive success lately, it can be argued that the technology is still in its early stages. With a limited supply of coins and more people getting interested and investing, the technology is experiencing growing pains. Bitcoin has relatively small transaction blocks, therefore the transaction pool is often clogged and miners need time to process and confirm payments. In addition, transaction fees tend to increase significantly when the pool is full and this goes against one of the original ideas of cryptocurrency: fast, easy and cheap transactions. Over the past year, multiple solutions to fix bitcoin’s scalability issues have been attempted or have been in development. These included hard forks, Segregated Witness or even creation of new coins like bitcoin cash. However, the most promising solution, which is still in development, is the Lightning Network.
The Lightning Network solution is a system that relies on a different chain (off-chain protocol) to process micropayments of digital currencies. It allows for instant and cheap transfer of funds between two parties in a peer-to-peer fashion, without the need for verification from a third party. In addition, the Lightning Network maintains total privacy and security of transactions, one of the strengths of cryptocurrencies. The protocol relies on SegWit.
A few days ago, the Lightning system came back in the news, as Bitrefill, a prepaid phone service, has successfully completed the first ever bitcoin Lightning Network payment. On Twitter, Alex Boxworth announced that he successfully paid his Bitrefill bill using Lightning. It took seconds and had no fees. In November, an atomic swap between bitcoin and litecoin was also successfully completed using the Lightning network.
The Lightning network could very well be the future of bitcoin transactions, and even cryptocurrency transactions in general. Once implemented, it could revolutionize the way we use digital currencies and could accelerate mass adoption. The future looks bright for bitcoin transactions, and the year 2018 will be an important one for the world of cryptocurrencies.
TLDR: As bitcoin grows, the network reveals transaction and scalability issues. Bitcoin’s chain blocks are too small for the number of transactions that go through each day. Lightning Network is the best solution currently being developed, as it can process hundreds of transactions in seconds. All this with small fees, fast confirmations, and total privacy.