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The Lightning Network is an extension solution built for the Bitcoin blockchain, operating as a "Layer-2" or "second layer" above Bitcoin. Soon after Bitcoin gained popularity, developers began exploring solutions for expanding the network.
The Three Trilemma of Bitcoin and Blockchain
The blockchain trilemma entails inevitable trade-offs between scalability, decentralization, and security. Alternative consensus models to traditional Proof of Work optimize scalability and maintain higher throughput options for more users. However, these alternatives compromise security and decentralization, enabling faster transaction processing.
To address the trilemma and find a unique solution that doesn't sacrifice Bitcoin's core strengths in decentralization and security, developers had to devise a distinctive approach to cope with scalability challenges.
The Lightning Network operates as a Bitcoin-based network using "payment channels." By initiating an initial "unique" transaction, a payment channel can be created between two parties. The transaction opens the channel and locks a certain amount of Bitcoin. Once the channel is open, the two parties can engage in an unlimited number of transactions with each other. These transactions occur off-chain, instantaneously, and at significantly reduced costs.
Accessing Bitcoin through the Lightning Network is extremely lightweight, requiring only simple tools like a mobile phone. This is a crucial factor for the significant potential of the Lightning Network in countries like El Salvador, where Bitcoin was recently adopted as legal tender. Compared to using base-layer Bitcoin for payments, which could be slow and expensive, Lightning Network transactions facilitated by mobile devices could enable a more widespread population in El Salvador to use and feasibly transact in Bitcoin.
Nostr is an example of the growing use cases for the Lightning Network. It is a decentralized social media application with a unique approach to content sharing and community interaction. Nostr is open-source, operating as a protocol rather than an application. Developers can build their own "clients" on top of Nostr, similar to email clients like Gmail and Outlook.
Nostr can connect with Lightning Network wallets that support it and send Bitcoin tips to users creating content they appreciate.
Nostr has become increasingly popular due to its decentralization and privacy. Users on Nostr can tip each other using the Lightning Network. According to Nostr's data, in the past two months, 2.1 million Lightning tips were sent on Nostr. The total tip amount was 1,345,987,343 sat or 13.46 BTC, equivalent to $593,863.08 at today's prices.
Other factors contributing to the growth of the Lightning Network include the popularity of Bitcoin Lightning Network applications like the Satoshi Wallet and the Phoenix Wallet. Wallets facilitating small transactions between 1-10 sat (0.00044 USD-0.0044 USD) contribute to 25% of transactions and aid in payments.
Another growth factor is other platforms promoting Lightning tips, including TNHDR Gaming. Bitcoin game developers have released games, supported by the Lightning Network, where users earn Bitcoin-based rewards through in-game achievements. These games integrate with Nostr. TNHDR Gaming's data shows a 226% growth in transaction volume from February 2022 to August 2023, increasing from 82,000 transactions to 267,000 transactions.
The adoption of Bitcoin in countries like El Salvador is driving the potential growth of the Lightning Network. In September 2021, El Salvador became the first country globally to designate Bitcoin as legal tender. This shift means that legally, all businesses in the country must accept cryptocurrency payments. Mike Peterson, Director of Bitcoin Beach El Salvador, explains that the Bitcoinization of El Salvador is a grassroots movement. Notably, the adoption of Bitcoin gained momentum after discussions with several major economic departments following Bitcoin Beach's operator's efforts.
While the adoption of Bitcoin as a medium of exchange progresses slowly due to the popularity of the USD as a frictionless payment option, the Lightning Network holds the key to making Bitcoin a feasible choice for daily transactions in El Salvador.
Strike, a Bitcoin Lightning Network-driven version of personal finance apps like Venmo and Cash App, was launched in September. The app was developed by Lightning Network developer and proponent of El Salvador, Jack Mallers.
"We decided to enter El Salvador as our first non-US market deliberately. One of the most interesting opportunities for Strike is our ability to provide financial tools to emerging markets. El Salvador is the sixth-ranked country in terms of inbound remittances to the US," Mallers told the press.
"Without supportive financial regulations, fintech banking infrastructure, or peer-to-peer applications, they have looked at Bitcoin as an asset and network to improve financial access through initiatives like Bitcoin Beach," he continued.
Despite facing initial obstacles and challenges, the Lightning Network has demonstrated its resilience and the significant potential to enhance Bitcoin's functionality. Addressing the challenges of the blockchain trilemma—achieving scalability without compromising decentralization or security—is nearly impossible. The Lightning Network offers a solution that allows for instantaneous, low-cost transactions. While this solution involves peripheral approaches, it is a crucial development, especially for Bitcoin, which has |
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Post time 28-12-2023 07:02:20