Explaining the Lightning Network and Bitcoin’s Scalability Problem
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We recently published an article called Six myths about blockchain and Bitcoin: Debunking the effectiveness of the technology. Before we start, it is important to remember that blockchain and Bitcoin are not the same thing.
Bitcoin technology combines several technologies: Therefore, on the one hand, blockchain problems arising from the form in which it is used by Bitcoin are not universal, and it can work differently for other currencies. On the other hand, right now the market is bitcoin scalability of product by Bitcoin-like blockchains based on proof-of-work POW. And for Ethereum, the second-best bitcoin scalability of product terms of capitalization, it is 15 simple money transfers and 3—5 smart contracts per second.
The POW principle accepted for most currencies guarantees that electricity consumption and the amount of hardware will grow until mining becomes unprofitable. Experts have long been concerned about the problem of insufficient transaction speed in the Bitcoin system, and to address it, they invented the Lightning Network.
This is how it works — or, how it will work, once it is launched: First, certain network participants who need a faster transaction rate set up a separate channel — consider it a kind of private chat room — and, as a guarantee of integrity, make a deposit in the main Bitcoin network. Then they start exchanging payments separately from the rest of the network — at any speed.
When the channel is no longer needed, the participants record the results of bitcoin scalability of product interaction in bitcoin scalability of product public blockchain and, assuming no one violated the rules, receive their deposit back. Optimistic predictions have bitcoin scalability of product Lightning Network launching as early as this year, enabling millions of transactions per second. Blockchain is bulky, but that stopped being a problem after some trust was built on the network.
First of all, existing Web wallets and Web services store everything and do all of the work for you. If no one complains about a certain service, it can very well be considered reliable and somewhat trusted. It also comes with an important advantage compared with traditional payment systems. If one Web wallet closes, you can simply switch to another one, because they have the same transaction records — blockchain is the only one. Compare bitcoin scalability of product with what would happen if your regular bank encountered a glitch or went bankrupt and you needed to switch banks.
Satoshi himself described another, more advanced and more reliable method back in Instead of storing and processing the entire GB blockchain, you can download and check just the block headers, as well as proof of correct transactions that are directly connected to you.
If many random network nodes bitcoin scalability of product you are talking to report the block headers are exactly the same, you may rather confidently say that everything is correct.
But you can save even more: The classic blockchain is indeed completely unscalable; adding resources does not affect the speed of transactions at all.
Joseph Poon the inventor of the Lightning Network and Vitalik Buterin a cofounder of Ethereum recently proposed a new bitcoin scalability of product. They call it Plasma.
Plasma is a framework for making a blockchain of blockchains. The concept is similar to that of the Lightning Network, but it was developed for Ethereum. Here is how it works: Someone makes a deposit in the main Ethereum network and starts talking to other clients independently and separately, supervising the execution of his or her smart contract and the general rules of Ethereum on their own.
A smart contract is a mini-program for working with money and Web wallets. It is the key feature of Ethereum. From time to time, the results of these individual communications are recorded in the main network. Also, as with the Lightning Network, all participants oversee the execution of the smart contract and complain if something is not right.
So far, the proposal is just a draft, but bitcoin scalability of product the concept is successfully implemented, the problem of blockchain scalability will be a thing of the past. Proof-of-work is bitcoin scalability of product most popular method of reaching a consensus in the cryptocurrencies. A new block is created after lengthy calculations performed solely to prevent rewriting of the financial history.
POW network miners burn a lot of electricityand the number of megawatts wasted is regulated not by safety concerns or common sense, but rather by economics: Capacities expand as long as current cryptocurrency exchange rate keeps mining profitable. An alternative approach to distributing the right to create blocks is called proof-of-stake POS. Using this concept, the likelihood of creating a block and thus the right to receive an award in the form of interest or newly emitted currency depends not on how much computational work you done how much electricity you burntbut on how much currency you have in the system.
If you own a third of all coinage, you have a one-third bitcoin scalability of product of creating a new block, thanks to a random algorithm. This principle is a good reason for participants to obey the rules, because the more of the currency you have, the more interested you are in a properly functioning network and a stable currency rate.
A more radical method bitcoin scalability of product as well: For example, 10 hospitals bitcoin scalability of product use a blockchain to keep track of an epidemiological situation in a city.
Each hospital has its own signature key as proof of authority. That makes such a blockchain private: Only hospitals can write to it. At the same time, it helps maintain openness, an important quality of the blockchain.
However, proof-of-authority is detrimental to the original blockchain concept: The network effectively becomes centralized.
Some networks do useful work within the proof-of-work concept. They look for prime numbers of a certain type Primecoincalculate protein structures FoldingCoinor perform other scientific tasks that require a lot of calculations GridCoin. It is not very easy to introduce changes into a decentralized network protocol. The developer can either run mandatory updates for all clients — although that kind of network cannot be considered truly decentralized — or persuade all participants to accept the changes.
If a significant proportion of them vote against the changes, the community may split: The blockchain will split into two alternative blockchains, and there will be bitcoin scalability of product currencies. That split is called a fork. Part of the problem is that different participants have different interests. Miners are interested in growing rewards and interest; users want to pay less for transfers; fans want the cryptocurrency to become more popular; and geeks want useful innovations to be added to the technologies.
Two of the largest cryptocurrencies have already split. It happened with Bitcoin not too long ago, when participants were unable to agree on a bitcoin scalability of product for expanding block size. A little earlier, something similar happened with Ethereum, the result of a disagreement about if it was fair to cancel a crack on an investment fund and return the money to investors. It is possible to encode into a cryptocurrency the ability to vote on modifications. Primary voting characteristics are as bitcoin scalability of product.
In short, the rich may take over. Everyone knows your address and how much you have, and when you try to convert your money into dollars in the exchange, then law enforcement will know how much you have in dollars. Dividing up the money into 10 wallets only means having 10 accounts associated with you.
There are services called mixers or tumblers that move around large sums of money for a fee, to obscure the real owner, but they are inconvenient for a number of reasons. The creators of the cryptocurrency Dash the former Darkcoin were the first to try solving the anonymity problem, by using the PrivateSend function.
Their approach was simple: They designed a tumbler right into the currency. There were a few problems. First, if someone e. Perhaps an unlikely scenario, but still quite possible. A more reliable approach was invented: First, Monero uses electronic signatures that permit a group participant designated by the cell to sign a message on behalf of the group and also prevents anyone from ascertaining who signed it.
This ability permits the sender to hide their own traces. At the same time, the protocol prevents double spending. Third, some senders may want to generate one-time wallets to keep money that is private and funds coming in from the markets separate. This recommendation was made long ago over at Bitcoin. Our short overview of issues that some talented people have turned to their benefit has come to a close.
Strictly speaking, the title of this article is inaccurate. It inspires people bitcoin scalability of product look for ways to improve it.
From ransomware to Web miners. Problems and risks of cryptocurrencies. Smart contracts, Ethereum, ICO. Alexey Malanov 12 posts. Why blockchain is not such a bad technology September 28, Technology. The Lightning Network Experts have long been concerned about the problem of insufficient transaction speed in the Bitcoin bitcoin scalability of product, and to address it, they invented the Lightning Network.
Blockchain is bulky Blockchain is bulky, but that stopped being a problem after some trust was built on the network. Web wallets First of all, existing Bitcoin scalability of product wallets and Web services store everything and do all of the work for you.
Thin wallets Satoshi himself described another, more advanced and more reliable method back in Proof-of-stake An alternative approach to bitcoin scalability of product the right to create blocks is called proof-of-stake POS. Proof-of-authority A more radical method exists as well: Resources can be used for good Some networks do useful work within the proof-of-work concept.
Blockchain is decentralized and therefore is not developing It is not very easy to introduce changes into a decentralized network protocol. How can such situations be avoided?
