How Does the Lightning Network Stack Up Against Its Biggest Competitors?

[Mark Mason]

How Does the Lightning Network Stack Up Against Its Biggest Competitors?

Bitcoin has longtime and well-known scaling problems, with fees last year spiking to over $30 on average for a transaction and confirmations taking hours, sometimes days. The transaction load of the network topped out at around 400,000 per day, capped by the one megabyte block size. In order to scale past that level without increasing the block size, Bitcoin has looked to a new technology called the Lightning Network to scale the network off-chain past the limitations of purely on-chain capacity. Here we examine Lightning, and compare it to other payment-focused cryptocurrencies taking the on-chain scaling approach.
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How It Works​

The Lightning Network is a complicated second layer system that has been in development for years, so explaining it in comprehensive detail isn’t easy. Instead we can offer a simplified explanation. Lightning is an off-chain solution, meaning it doesn’t send actual coins, rather makes accounting changes on the second layer, which then gets settled on the main layer, avoiding the need to move actual funds thousands of times. It works by setting up a payment channel by sending funds into a multisignature address that has keys controlled by multiple parties. Transactions are made back and forth between two parties off-chain, and whatever the balance is when the channel is closed will be sent back to the users’ wallets in the appropriate amounts. This is how bi-directional (two-way) payment channels work.

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