The Case for the Lightning Network. Part 1

Bitcoin was the first cryptocurrency that became really popular and is currently finding its way into the mainstream. At the beginning of 2018, most of the media, including CNN, CNBC, Forbes, Bloomberg and even Buzzfeed have reported about Bitcoin multiple times. Most financial and business experts, including Warren Buffet, Bill Gates, CEO of Chase Bank Jamie Dimon and others regularly give their opinions about Bitcoin. In 2017, Jamie Dimon called Bitcoin a fraud and said that he would fire any Chase Bank employee who would trade using Bitcoin. In the beginning of 2018, Dimon said that he regretted his negative statements about Bitcoin. In the beginning of 2018, Goldman Sachs published a report in which the company highlighted how Bitcoin and other cryptocurrencies can gain countrywide acceptance in countries with troubled economies.

There are several reasons why Bitcoin was able to become so popular and famous. It is the first decentralized and fully transparent digital currency that can only have a limited number of coins in circulation.

Decentralization and coin cap mean that there is no authority that can decide to print more money and devalue the currency by doing so. Transparency means that the Bitcoin blockchain has a record of all the transactions that have ever occurred on the network and any person can look these transactions up by visiting https://blockchain.info/

Another reason why Bitcoin gets so much attention is that all official government currencies in the world are fiat currencies. This means that they have no intrinsic value. The only reason they have value is because governments have assigned value to them. There is no gold, silver or any other commodity behind them. So far in the human history, every fiat currency has crashed at some point, which is the Bitcoin phenomenon is so interesting and promising. The creators of the Lightning Network have asked the question: what would Bitcoin need to become the most popular currency in the world? Below you will find a description of the issues that would prevent Bitcoin from getting mass adoption all over the world. These are the issues that the Lightning Network is trying to solve.

 

Broadcasting transactions to all participants of the network

Bitcoin in its current version can’t cover the bulk of financial transactions in the world any time soon simply because its capacity to process transactions is between 3 and 7 transactions per second. One of the issues with Bitcoin blockchain that would not allow Bitcoin in its current form to become the world’s most popular currency is that the Bitcoin network broadcasts all the transactions that occur on the network to all the nodes on the network (a node on the Bitcoin network is a computer that has a full copy of the Bitcoin blockchain). There are over 7 billion people living on Earth today. If most of the people living on the planet were to use one cryptocurrency and if the currency’s network were to send information about all the transactions to all the participants at all the times at the same time, this would make the network extremely inefficient and bring up a lot of other issues. For example, another issue that the Bitcoin network has been dealing with in 2017 and continued to try to solve in 2018 is the issue of centralization. If the Bitcoin blockchain were to keep growing, nodes on the network would need to become more powerful and have a lot of storage capacity because as of September 2017 the full Bitcoin blockchain was 135 gigabytes.

In many of the developing countries across the world, the primary device of the Internet access is the smartphone. When computers became popular in the West in the last two decades of the twentieth century, they were too expensive to become affordable in the developing countries. Then, the Internet became available on the cellphones and smartphones. As the prices of many of the smartphones kept going down, more and more people all over the world were able to afford a smartphone with Internet access. This means that they could become users of cryptocurrencies, but not when they have to store a 100+ gigabyte ledger on their device. This is simply not realistic.