In 2008, Satoshi Nakamoto released a white paper, “Bitcoin: The Peer to Peer Electronic Cash System.” It was a protocol for the development of an electronic cash system without using intermediaries. Months later in 2009, Bitcoin’s first-ever block was released.
At the start, Bitcoin did not have a block size. A block size of one MB was introduced to reduce the danger of spamming. The blockchain has maintained this small block size to help keep the network decentralized even during the most turbulent times.
Small Block Size Makes Payments on Bitcoin Pretty Expensive
Although decentralized and secure, Bitcoin’s Network comes with a number of drawbacks. Today, the transaction capacity is very small to use in mass payment systems. The throughput of seven transactions every second is very small when compared with others, like Visa, which processes up to 5,200 transactions per second.
Again a new block is mined every ten minutes, and the standard practice is to wait for more blocks to confirm that a transaction went through.
Space limitation on Bitcoin means that transactions have to compete to be completed. Therefore, miners opt to select the transactions that pay more fees, making sending BTC very expensive.
Lightning Network Allows Small and Instant Bitcoin Payments in Bigger Numbers.
Lightning Network helps to solve the challenge of Bitcoin’s limited capacity and also pulls down the transaction fees.
Lightning Network is a system of channels, with each of them opened via one transaction in the Bitcoin blockchain. So, once the channel is open, the two counterparties sign updated Bitcoin transactions and redistribute the value of the opening blockchain transaction. The lovely thing about this is that the updated Bitcoin transactions are not broadcasted, meaning that they do not have to be broadcasted to the entire blockchain. Therefore, they do not take block-space or require a miner fee, but can still be broadcasted, which means they have value.
Lightning Network System Use is Growing Fast
Because of protocol design, the use of Lightning Network is a sort of blackbox. This is why more people are looking for perfect metrics to assess Lighting Network’s use. In their report, Lightning Network indicated that transactions have doubled in 2022 compared to 2021 and payments have risen by 400% (measured in US dollars).
The company is now pointing at a greater potential. In summer of 2021, Lighting Network estimates that only about 100,000 users accessed the system. In March 2022, over 80 million people had access to the lightning payments. Note that people accessing the network are not the same as active users.
Now that the company has announced the possibility of using Bitcoin payments on Lightning, active users are expected to increase. Despite the growth, it is important to factor in that most Bitcoin holders use it as a store of value or investment.
Lightning Network to Fulfill Nakamoto’s Dream
The white paper released before the Bitcoin blockchain system shows a solution not reliant on intermediaries. The paper does not indicate that it was intended as an investment. However, the numbers show investment is the biggest motivation for BTC holders.
To maintain small blocks and keep the block-time long, Bitcoin requires a solution like the LightNing Network. It is a system that matches Satoshi Nakamoto’s original vision.