Lightning Network is a “layer 2” payment protocol that operates on top of a blockchain-based cryptocurrency (like Bitcoin). It is designed to enable instant, low-cost payments between participating nodes.
Lightning Network was proposed in a white paper by Joseph Poon and Thaddeus Dryja in 2015. The protocol has been under development by various organizations and individuals since then.
Bitcoin’s Lightning Network is one implementation of the Lightning Network protocol. Other implementations include Litecoin’s Lightning Network, which is currently live on mainnet, and Ethereum’s proposed Plasma implementation.
The Lightning Network is designed to work with any blockchain that can support smart contracts. A key feature of the Lightning Network is its use of “payment channels.”
Payment channels allow participating nodes to open up a channel between each other. They can then send an unlimited number of payments back and forth between each other, without having to broadcast those transactions to the blockchain.
This off-chain transactions are only settled on the blockchain when the channel is closed. This allows for near-instantaneous settlements, while still being trustless and secure (because the transactions are ultimately recorded on the blockchain).
Lightning Network can be used for any type of transaction, not just cryptocurrency payments. This makes it a very versatile tool that has a lot of potential uses.
Critics of Lightning Network argue that it centralizes power among a small group of nodes, which goes against the decentralized ethos of Bitcoin. They also argue that it introduces new security risks, since channels can be subject to fraud and theft.
Supporters of Lightning Network argue that it does not centralize power, because any node can participate in the network. They also argue that the security risks are overblown, because channels can be secured with multi-signature contracts.
At this point, it is still too early to say whether or not Lightning Network will be successful. Time will tell if it will become widely adopted or if it will fizzle out like other Bitcoin scaling solutions that have come before it.