Lightning Network: the layer 2 solution on Bitcoin with more capacity than VISA and that allows executing “Smart contracts”

Lightning Network: the layer 2 solution on Bitcoin with more capacity than VISA and that allows executing “Smart contracts”

Víctor Gil, Business Intelligence - Expert

Víctor Gil

Business Intelligence - Expert

March 13, 2023

The possibility that Lightning Network would be better than VISA on micropayments is very real. Companies like Strike are already taking advantage of its benefits.

Bitcoin is well known, maybe what it is not as well known are the applications built on top of it. One of these is “Lightning Network”, a layer 2 solution, meaning a development over an existing blockchain.

Bitcoin is the first blockchain, the most popular and probably the most secure and decentralized. However, it has some problems when used as a payment channel: no scalability (just 7 transactions per second), high transaction fees and not fast enough. To solve these problems and to be able to use Bitcoin (BTC) as a payment channel, there is Lightning Network.

The Lightning Network solution through its payment channel makes it possible to do transactions from one node to another without intermediaries or centralized entities. You can send BTC to anyone without fees. Of course, the security is guaranteed, as are the funds, which do not get lost even if the transaction does not complete.

Lightning Network has greater capacity than VISA, speed is almost instantaneous and the fees are near zero. Those features make Lightning a perfect solution for the inconveniences of Bitcoin’s layer 1.

Post-Lightning Network

Comparison of transactions per second.

In addition to this, Lightning Network is anonymous because the transactions are made off-chain the main Bitcoin network. That means, there is one more level of security added over the Bitcoin blockchain, that is not anonymous but pseudonymous..

Paypal allows one person to send money to another person without taking care of anything. With Lightning it is the same, you can send BTC to anyone you want and wherever you want without centralized entities or nodes that need the transaction to be confirmed. Moreover, thank you to companies like Strike or purse.io you can buy on Shopify or Amazon with BTC.

As a result of all of this, there is the possibility of creating a private network of BTC where all the nodes are connected among them but not outside the network. It is a completely isolated network of BTC.

To develop that solution, “Smart contracts” were developed, so payment automation is also possible. This means that the possibilities of creating and building other “Smart contracts” and DApps are incredibly huge, the same as occurs with the Ethereum network. In fact, many applications are moving from Ethereum to Bitcoin Lightning Network because of the fees. The most popular is Lightning and the higher the number of active nodes has, the higher the potential to build a layer 3 that can hold DApps and DeFi.

Víctor Gil, Business Intelligence - Expert

Víctor Gil

Business Intelligence - Expert

Industrial engineer with over 10 years of experience working with data, and since 2013 also learning about Bitcoin and blockchain.


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