Currently, bitcoin transactions are validated through a process called mining, where powerful computers solve a complex math problem before the transaction is recorded on the blockchain. A whole confirmed transaction can take up to an hour.
The Lightning Network promises to reduce this process to seconds. It requires participants to agree to a transaction on a separate channel and then the blockchain will update their accounts accordingly. This can be done without the need for miners or third parties such as digital wallet providers.
The developers of Lightning say this means transactions can be instant, will allow for micropayments of bitcoin and enable a larger volume of transactions. It may even help bitcoin be used more on the high street.
“Lightning can be used at retail point-of-sale terminals, with user device-to-device transactions, or anywhere instant payments are needed,” the developers said in a summary document.
Lightning will make bitcoin a long-term competitive payment platform and could revolutionize peer-to-peer payments, according to Gatecoin’s Menant.
“Particularly with regards to micropayment transactions that may be useful for emerging markets with low-value local currencies,” he said.
“It can also be implemented to facilitate machine to machine payments, using its smart contract framework, so that firms running various automated processes can benefit from direct payment relationships between its software and that of its clients or suppliers.”