Lightning Network, a technology that many hope will make the Bitcoin payment network substantially more efficient, is becoming a reality. Standards have been adopted, Lightning transactions were first demonstrated in early December, and late last week, the VPN service TorGuard touted what might have been the first purchase of physical goods using Lightning.
Was this the first physical item purchased on Lightning Network? ⚡️https://t.co/tSq8mOcCSX
— TorGuard (@TorGuard) January 19, 2018
For the many still trying to figure out exactly what Bitcoin itself is, understanding why Lightning matters might be tough. At the bottom is Bitcoin’s scaling challenge, which has kept it from fulfilling its promise of rapid, cheap money transmission. The search for a solution has led to major personal and technical schisms in the open-source, democratically governed project. Lightning Network is regarded by many as the most promising long-term answer to the scaling issue, though in a sense it solves the problem by not solving it at all.
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Blockchains like Bitcoin are inherently inefficient, trading speed for decentralization, reach and security. To get around that fundamental challenge, Lightning conducts transactions on private channels outside of the main network, then settles them to the primary blockchain in batches. That makes transactions much faster and much cheaper, while theoretically keeping most of the security advantages of a blockchain. A simple way to think of it is that Lightning transactions are equivalent to gold-backed paper money, while the main Bitcoin blockchain is the gold. If that metaphor isn’t quite satisfying, Wired last week released an excellent deep dive into Lightning’s history and technical details.
Like most elements of Bitcoin, the rollout of Lightning is entirely decentralized, and actors have to specifically choose to deal with Lightning-based payments. For now, only the very bold are taking that risk, and the various implementations of the protocol are officially still being tested (TorGuard promised to reimburse customers if anything went wrong). But even with a gradual rollout, there’s hope that offloading a portion of payments to Lightning will reduce load on the main Bitcoin network.
Despite early-adopter feedback that occasionally borders on euphoric, global cryptocurrency markets don’t seem to have taken much notice of Lightning’s progress. Since peaking and crashing in mid-December, Bitcoin’s price has been in a gradual slump in lockstep with most other cryptocurrencies. That arguably demonstrates just how far 2017’s crypto-mania divorced speculation from fundamentals.
