What Is The Lightning Network?

The Lightning Network has grown at an electric pace, but what the network is and how it operates is a new concept to many.

Today, we provide a concise overview. 

What is the Lightning Network?

The Lightning Network is a payments scaling solution built on top of Bitcoin. 

Bitcoin transactions can take up to an hour before confirmation, which is an eternity in 2021. The Lightning Network fixes this by allowing payments to be settled almost instantaneously at a very low cost.

This includes micropayments, which can be less than a penny and so cost is key. 

It’s fast and cheap.

The Origin of the Lightning Network

Joseph Poon and Thaddeus Dryja published the Lightning Network white paper in February 2015. 

In October 2016, Blockstream completed the first Lightning transaction on Bitcoin Testnet.

Today, the Lightning Network’s capacity has eclipsed 3,200 Bitcoin. This means the network can hold 3,200 Bitcoin across it’s channels simultaneously. 

This total capacity has more than doubled since June. 

How It Works

Two transacting parties create a payment channel off the Bitcoin blockchain. This allows for payments across the network without the need for custodial ownership of funds.

For those interested in going deeper here, check out the Bitcoin Lightning Network Summary.

Lightning Is Growing Fast

Check out this 3-year Glassnode chart showing the growth of the number of nodes on the Lightning Network:

This means more people are using it.

The Lightning Network opens up the Bitcoin monetary network and allows anyone connected to the internet to transact anywhere. It is a global expressway for capital.

In a recent podcast, Lightning Labs’ Director of Business Development, Ryan Gentry states,

The Lightning Network is a transportation network for satoshis. 

One of the great things about Web3 is that it is not a zero-sum game — it’s a positive-sum game.

Here are a few resources to learn more about the Lightning Network — 

The Lightning Network whitepaper (2015)

The Official Lightning Network Summary

The Official Lightning Network website

2015 SF Bitcoin Devs Seminar: Scaling Bitcoin to Billions of Transactions Per Day

Bitcoin’s Layer 2 Lightning Network with Lightning Labs’ Ryan Gentry

This is the third installment in The Osprey Crypto Made Simple Series where we describe a concept clearly and concisely. If there’s something you would like us to define, please reply to this Newsletter email or, if you are reading this on the web, hit us directly at riley@ospreyfunds.io.