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Interpreting the Past and present lives of Lightning Network: An important step in the two-layer expansion of Bitcoin

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Perhaps one day Lightning Network will be to Bitcoin what Visa is to currencies.

Original author: Twitter@EvieEvieXia

Original editor: Twitter@binary_dao

Research introduction:

Satoshi Nakamoto 2009 The idea of a payment channel came about when Bitcoin was created in 1996, and has been around ever since. Bitcoin 1.0 Contains a draft code for the payment channel. In the years since, the implementation of payment channels and lightning networks has been pushed forward by geeks in the Bitcoin community, even if it is a long and difficult road to fulfill the original purpose of Bitcoin -- to build a peer-to-peer electronic cash system.

The founder of Twitter. Jack The lightning network is integrated into the network. Twitter Or BlueSky It's just a matter of time and in time. 2021 The year was announced. Twitter Can support the third party lightning network reward service. Decentralized social apps are hot these days. Damus The built-in Bitcoin Lightning network payment function, once again triggered everyone's attention to the lightning network.

Lightning network puts the transaction link down the chain, and only the final transaction result is confirmed on the chain, thus improving the transaction efficiency of the Bitcoin network and enabling users to complete the payment at a lower cost and faster speed.

The use cases of Lightning network include social platform tipping payment, cross-border remittance, merchant payment, transfer transaction, etc., which can meet the needs of diversified payment scenarios.

2021 After El Salvador legalized bitcoin in 2000, the number and amount of payments on Lightning rose rapidly. Up to 2023 Year 2 Month 8 On Sunday, the lightning network has a total. 1.6 & have spent Ten thousand nodes, nearly 7.7 & have spent Ten thousand payment channels, channel funds about. 5356 A single bitcoin, or about $1 1.24 & have spent Billions of dollars).

2022 The year also saw a number of large funding deals, with top institutions including a16z and Paradigm investing in related projects.

Of course, there are still many challenges before Lightning network becomes universal, and there is still a long way to go to get users to accept cryptocurrency payments at a psychological and behavioral level, and to build a large payment network based on users. On the bright side, lightning networks already have a number of real and effective use cases. Strike, Lightning Labs As the technology continues to mature and the use of scenarios continue to be rich, perhaps one day, lightning network will be to Bitcoin, the same. Visa For money.

What is Lightning Network

Lightning Network is Bitcoin's answer. Layer 2 In the Bitcoin payment scenario, Lightning network can help users save costs and improve efficiency.

1. Development history

The original concept of the Lightning network, called the "payment channel," was designed to use transaction replacement to update the status of unconfirmed transactions until they were broadcast to the Bitcoin network. Satoshi Nakamoto 2009 The idea of a payment channel came about when Bitcoin was created in 1996, and has been around ever since. Bitcoin 1.0 Contains a draft of the payment channel code, which allows users to update transactions before they are confirmed by the network. In 2013 In 2001, Mike Hearn The Bitcoin development email group elaborated further on Satoshi's idea of a payment channel.

In the years that followed, there were solutions, but they didn't make much of a difference. Until... 2015 Year 2 Month, by Joseph Poon And Thaddeus Dryja The white paper "The Bitcoin Lightning Network: Scalable Off-Chain Instant Payment" was published. At this point, the lightning network was born.

深入解读闪电网络：探寻比特币支付通道的前世今生

Payment channel mesh routing in Lightning networks

2015 Year 12 Month, Gregory Maxwell An email to Bitcoin developers included a roadmap of expansion solutions that prominently included the Lightning Network. The roadmap has the backing of much of the Bitcoin technology community and has been widely discussed in the Bitcoin blog. Bitcoin Core Implementation in the project. This has aroused everyone's expectations for the Lightning network. Then, enthusiastic developers built BOLT, the Lightning network's protocol stack. Based on this standard, the Lightning network is compatible with Bitcoin, Litecoin (or other Bitcoin-like versions). Token).

2018 Year 3 Month, Lightning Labs It was released. beta Version of the Lightning Network implementation solution, its features can be used by early users, marking a milestone in the development of Lightning network. At the same time Lightning Labs Announced that it had won 250 $10,000 seed round funding from investors including Twitter The founder of Jack Dorsey. Later on, the protocols and applications of lightning network are gradually enriched, such as BOLT An enhanced version of the protocol -- OmniBOLT, a payment platform that supports the Bitcoin Lightning network Cash APP Strike And so on. In Damus After the launch, Lightning network once again ushered in a new breakthrough...

2. Implementation method

The core idea of Lightning network is not complicated, that is, transaction links are carried out under the chain, and only the final transaction result is confirmed on the chain, so as to improve the transaction efficiency of the existing Bitcoin network. Its operation mode is as follows:

The two parties to the transaction establish an off-chain payment channel at the time of the first transaction, which is essentially the bookkeeping book to be held by both parties to keep transaction records. Both parties lock a certain amount of money into the channel and then sign the transaction using a private key.

深入解读闪电网络：探寻比特币支付通道的前世今生

The logic of the lightning network, source: https://www.youtube.com/watch?v=FOT6NqaEtfc

Money transfers between the two parties do not take place on the chain, but are kept only in each other's books, and when one or both parties decide that the channel is no longer needed, the balance settled is broadcast on the main network.

深入解读闪电网络：探寻比特币支付通道的前世今生

The logic of the lightning network, source: https://www.youtube.com/watch?v=FOT6NqaEtfc

But the Lightning network is not just a direct connection between two parties. It allows a large number of single channels to be connected together to form a vast, interconnected payment network (see chart below). In other words, suppose C And A There are channels, C And B No channel, but A And B There is a channel, then C You can pass A Come indirectly. B Acting as a middleman in a transaction. A Routing fees can be charged. In a lightning network, the network will find the path with the fewest nodes and transaction fees to complete the transaction.

深入解读闪电网络：探寻比特币支付通道的前世今生

Network logic operation, lightning source: https://www.youtube.com/watch?v=FOT6NqaEtfc

Two, Why You need Lightning networks

1. Speed up transactions

The Bitcoin network can currently execute a maximum number of transactions per second. 7 The increased use of the Internet may cause transaction confirmation to be delayed, which is very bad for users' payment experience, however. Visa Thousands of transactions can be executed every second. As the transactions in the channel of lightning network payment are all under the chain, only smart contracts are needed to execute, without the whole network confirmation, so the processing efficiency is greatly improved. In theory, the lightning network could handle millions of transactions per second.

深入解读闪电网络：探寻比特币支付通道的前世今生

nbsp of Lightning network; tps Comparison of Advantages (source: Blockstream)

2. Lower transaction threshold

The Lightning network can be paid for in the smallest unit of a single bitcoin, known as "smart". Eg. Bitcoin 1 Icong), which meets the needs of daily micro-payments.

3. Reduce transaction fees

Bitcoin block space is a scarce resource, requiring users to bid against each other to ensure that their transactions are included in the block space in a timely manner. For miners, higher-fee deals are bound to be included first. If not many users are doing the transaction, the fee can be set very low, so that the transaction may be included in the next block, but if many people are doing the transaction at the same time, the fee can increase significantly. Current Bitcoin transaction fees are at 1.5 & have spent The US dollar is around, while in 2021 At the peak of the market in 2005. 60 Us dollars (below). This is acceptable for thousands of dollars of transactions, but not for small, everyday purchases such as coffee.

Visa And mastercard charge per transaction. 2% Eg. 3% Charges while using the lightning network. 100 Transaction fees in dollars will not exceed. 1 Cents. The Lightning network has made it economical to use Bitcoin as a daily payment by dramatically reducing transaction costs.

深入解读闪电网络：探寻比特币支付通道的前世今生

The COINS, poundage data source: https://bitinfocharts.com/zh/comparison/bitcoin-transactionfees.html#3y

Three, What is the status of Lightning network?

1. Data performance

2021 After El Salvador legalized bitcoin in 2005, Lightning's network was used more and the number of BCTS in its channels grew rapidly (see chart below). Up to 2023 Year 2 Month 8 On Sunday, the lightning network has a total. 1.6 & have spent Ten thousand nodes, nearly 7.7 & have spent Ten thousand payment channels, channel funds about. 5356 A single bitcoin, or about $1 1.24 & have spent Billions of dollars).

深入解读闪电网络：探寻比特币支付通道的前世今生

nbsp in Lightning Network; BTC Number, the data source: https://river.com/learn/files/river-lightning-report.pdf

Lightning network channels are mainly concentrated in the United States, Canada, Germany. The US alone accounts for the number of channels. 30.15% & have spent While in Asia, only Singapore accounted for a relatively high proportion of the number of channels (1.644% ). . Due to the minimal use of lightning network in Asia, there is a poor understanding of lightning network between East and West.

深入解读闪电网络：探寻比特币支付通道的前世今生

Lightning network nodes and channels around the world, image sources; https://explorer.acinq.co/

2. Application scenario

Building on the maturing technology, payment and social giants are driving the popularity of lightning networks. The current lightning network usage scenarios include:

Payment and tipping on Social Platforms: Hot Damus Support lightning network payment and tip function, users can choose to use Strike, Cash App, Blue Wallet Waiting for dozens of wallets.

Cross-border remittance: Digital payment Platform Strike In 2023 Year 1 Month announced with Send Globally The partnership enables fast, secure, and low-cost money transfers between users in the United States and the Philippines over the Lightning network. By Send Globally, dollars can be converted into bitcoin, sent via a lightning network to a third-party partner in the recipient's home country, converted into local currency and sent directly to the recipient's account.

Merchant payment: Strike Partnered with Shopify, Blackhawk Network and NCR to build a Bitcoin payment system that allows merchants to quickly receive dollars after customers pay with the cryptocurrency. McDonald's, CVS, Walgreens, Whole Foods and Walmart are among the merchants that currently support the payment system.

Transfer transaction: Jack Dorsey The leader of a payments company. Block Its payment platform Cash APP It supports sending and receiving Bitcoin over the lightning network.

3. Ease of use

For ordinary users, it is easy to recharge and pay through Lightning-enabled wallets. With the more commonly used unmanaged wallet. Phoenix For example, it can automatically create payment channels for users. When creating a channel, Phoenix Will be charged. 1% And about 3000 But if you pay through an existing channel, it is free. In addition, it has call-in and call-out functions, allowing users to seamlessly send and receive transactions on the chain. In addition to Phoenix In addition, the current support for lightning network payment applications are also. Blue Wallet, Muun, Strike, Cash App In recent years, these applications have been continuously optimized and iterated, greatly lowering the threshold for users to use lightning network.

深入解读闪电网络：探寻比特币支付通道的前世今生

Support lightning network payment, image: file:///Users/xiayiwei/Downloads/the-state-of-lightning-volume-2.pdf

4. Investment and financing

2022 In 2005, Lightning network sector also appeared a number of large financing, including a16z, Paradigm; Top institutions are also investing in related projects:

2022 Year 4 Last month, companies focused on bitcoin. Lightning Labs Finished 7000 Ten thousand dollars B Round financing, Valor Equity Partners Lead the investment.

2022 Year 5 Month, by Meta Head of cryptocurrencies David Marcus Founded the Bitcoin Lightning Network. Lightspark Completed a round of financing from a16z and Paradigm Lead the investment.

2022 Year 9 Crypto payment app based on Bitcoin Lightning network Strike Declare complete. 8000 Ten thousand dollars B Round of financing.

Four, Problems existing in the development of lightning network

As for the defects of lightning network, there are opinions on the network that its node operation may become centralized, routing may encounter liquidity problems when the channel capacity is high, etc., but lightning network is still in its very early stage, and it is quite normal to have some problems and deficiencies, and related infrastructure and ecology are being improved. As long as lightning network is valuable and meaningful, And there are real user needs, we can give it a little more patience. Of course, user education is a big challenge in terms of the popularity of the Lightning network, and there is still a long way to go to get users to accept cryptocurrency payments psychologically and behaviorally, and to build huge payment networks based on users.

5, How will Lightning network develop

Overall, the Lightning network opens up new ways for Bitcoin to be used for everyday payments, as well as for Bitcoin's original intention to be a "peer-to-peer electronic cash system." Lightning Network from idea proposed to. 2018 The year officially landed, has been difficult to move forward, is still in the early stage. But the more optimistic is that lightning network from. 2021 It has developed rapidly since 2000, gradually forming a consensus among the user community and expanding the use cases that are real and effective.

Damus As a decentralized social application, Lightning network supports users to make payments and tips in the application, which may effectively cultivate users' habit of using Bitcoin for small payments. In addition, Strike, Lightning Labs Etc are also continuing to promote the development of lightning network. Perhaps one day Lightning Network will be to Bitcoin what it is. Visa For money.