Quick, Easy Transactions on Layer 2

The Lightning Network is a second layer on Bitcoin’s blockchain to enhance its scalability. By allowing off-chain transactions, parties not on the blockchain network are empowered to make transactions beyond the layer one blockchain mainnet. 

Proposed in 2015 by two researchers, Joseph Poon and Thaddeus Dryja, they detailed their idea in a paper titled “The Bitcoin Lightning Network.” These writings were based on discussions held previously with Bitcoin’s founder, the anonymous Satoshi Nakamoto.  

The two compared Bitcoin with existing payment solutions - Visa was able to reach close to 47,000 Transactions Per Second (TPS) during the holiday season of 2013.  

This amount of payment traffic was not possible for Bitcoin at that point of time. With Bitcoin being able to only handle seven TPS, the cryptocurrency needed eight gigabytes worth of transactions per block to even come close to that ballpark. 

Today, staying true to the paper’s intent, the Lightning Network is an off-chain protocol made up of Lightning Channels. Each individual Lightning Channel can process over 250 TPS, and there can be an unlimited number of channels within the network.  

There is, however, a limit to the amount of Bitcoin that exchange hands on each transaction for the Lightning Network. Currently, this amount stands at 0.168 BTC.