Bitcoin ⚡️ Lightning and use cases
Oct 13, 2022 . 2 min read . 63 views
What is Bitcoin Lightning?
- Peer-to-Peer Electronic cash system
- Layer 2 solution built on top of Bitcoin
- Offers instantaneous transactions
- Negligible transfer fee compare to bitcoin
- Can process millions of transactions per second vs 25k for visa and 60k for Solana
The Lightning Advantage
Trustless
- In the physical world, we give cash from our pocket to the vendor.
- However, in the digital world we need to trust services like stripe and PayPal to give our money to the vendor
- Lightning makes this process trustless.
Micro-payments
- On the lightning network you can send amounts as low as $0.0002.
- This makes sending small amounts of money easier without incurring any fees.
How does lightning work?
- Instead of recording all transactions on the main Bitcoin network right away, lightning sets up a payment channel between the two entities where they can record back-and-forth payments. The transactions are then later settled on the main bitcoin network when the payment channel is closed.
- A payment channel is like a digital ledger between the two parties where all the transactions are recorded.
- To create a payment channel, the payer must lock a certain amount of bitcoin in the network.
Applications built on the lightning network
- Lightning wallets e.g. Blue Wallet
- Crypto Paytm e.g Strike
- Crypto Messaging Platform where users pay a small amount to send a message to protect against spam e.g: Sphinx
- Streaming Micro-payments or automatic payments for goods and services e.g: whenever you read a news story at a news outlet money automatically gets deducted and sent to the news outlet. Customers, only pay for what they consume. For vendors streaming payments can allow them to have a more efficient business model.
Following is an example of a streaming payment service to automate tax collection and gov. spend.
