Lightning onboarding

A non technical introduction to lightning

The Lightning Network

The Lightning Network (LN) is a network that operates as a second layer on top of Bitcoin. Here users can make payment to each other without the necessity of publishing a transaction to the Bitcoin blockchain for each payment.

Before LN transactions can be made, a payment channel is opened, say among Alice and Bob. A payment channel between Alice and Bob has a fixed amount, which was funded by both of them respectively, so transactions can be moved almost instantly from Alice to Bob numerous times.

Good to know: A payment channel opened by Alice and Bob is a financial relationship between their respective nodes, set up by a transaction that shares ownership of bitcoin between both nodes.

Though the network operates on the blockchain, Lightning transactions are said to happen off-chain, meaning it does not need to be published on the Bitcoin blockchain (layer one). Only the initial transaction, known as the funding transaction which is made when opening a channel, and the final transaction, known as the closing transaction, which closes a channel are published on the blockchain.

Lightning Network features

The Lightning Network has tons of features, but some key features worth nothing are as follows

• Users can send multiple payments to each other, this is done in real time and at very low costs.

• Block confirmations are not needed for payment validation.

• Completed payments are irreversible

• Transactions do not need to be stored permanently hence fewer resources and cheaper fees.

• No new tokens, lightning payments uses Bitcoin

On-chain vs off-chain

There are some reasons why you'd use on-chain vs off-chain for transactions and some of these reasons are as follows

• On-chain transactions are useful when there are less transaction repetition, off-chain channels benefits from tons of transaction repetition.

• On-chain is useful for sending high-valued transactions, off-chain works very well with low-valued transactions. For example, making micro payments like buying a cup of coffee on-chain make less economic sense due to higher fees, but lightning payments are more suitable for such use-cases.

• On-chain is geared towards cold storage.

• On-chain responsibility is shifted to the protocol, while off-chain responsibility is shifted to the user.

As mentioned earlier, when using the lightning network, responsibility is kind of shifted to the user of the system. As a user of the lightning network, you are responsible for how you store your funds. These funds can be settled on-chain, undergoing some checks and balances to ensure that your actions are acceptable to everyone else.

Cryptographic systems attempt to mitigate unlawful outcomes by utilizing incentives and disincentives. Users of the system, in this case Bitcoin protocol places their trust in it, effectively banking on the rules it provides to correctly apply these incentives and disincentives when needed.

The subsequent write up will touch on a technical introduction to the Lightning Network.