Why the Bitcoin Lightning Network May Be Better Than Visa and Mastercard

When Satoshi Nakamoto launched Bitcoin, he envisioned a peer-to-peer payment system that would make banking easier. He foresaw a system that would reinstate privacy and get rid of third parties. In doing so, transactions would be faster, cheaper, and more efficient. Though this vision has yet to be realized, the Bitcoin Lightning network aims to bring us closer.

For all the functional benefits that Bitcoin provides, using it in real time is still pretty clunky. In 2016, Joseph Poon and Thaddeus Dryja launched the Lightning Network to try to make things smoother and more cost effective. How has their idea performed?

Goals of the Lightning Network

The Lightning Network is a second-layer scaling solution built on top of the Bitcoin blockchain. It allows transactions to be processed almost instantly and with much lower transaction fees than traditional payment networks like Visa and Mastercard. Using a technique called onion routing, the protocol essentially breaks up data into multiple packets. Then, it sends these out through different nodes in the network using end-to-end encryption. This makes the transactions more secure and private since it is hard to trace the origin of a transaction.

The Bitcoin Lightning Network also allows for increased scalability, with the ability to handle millions of transactions per second and much higher transaction volumes than Visa or Mastercard. This is because it eliminates the need for centralized systems, providing a decentralized peer-to-peer system with no single point of failure. Additionally, Lightning Network fees are much lower than those of Visa and Mastercard, making it a great option for microtransactions.

Microtransactions are small, instant financial transactions that take place online. They typically involve the exchange of only a few cents or dollars and may be used to purchase digital goods or services. Using Bitcoin for small amounts has been unrealistic due to high gas fees. The Lightning Network is a suitable platform for microtransactions due to its low transaction fees and near-instant processing.

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Author: Virginia Valenzuela

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