Scaling Bitcoin to Millions of Transactions per Second via Lightning Network

Bitcoin Lightning Network

Second layer solutions proposed for conducting Bitcoin transactions off-chain via peer-to-peer payment channels.

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Scaling Bitcoin Transactions Per Seconds

The bitcoin blockchain currently has a transaction throughput of 3 transactions per second (tps). Nic Niedermowwe of Prime Factor Capital wrote in a Medium article explaining why Bitcoin TPS is not enough to achieve adoption as a ‘world currency’. According to him, there were nearly 500 billion non-cash transactions globally in 2018, which equals roughly 16000 tps.

The simplest solution to increase transaction throughput is to increase the number of transactions included in each block, or the frequency at which blocks are added to the blockchain. The problem with that solution is that, recording more transactions on the blockchain would increase the costs of running a full node, which would negatively affect decentralization, and the security and trustless nature of the Bitcoin network.

The Bitcoin Layer 2 Network for Micropayments

Lightning Network is a second layer solution that have been proposed for Bitcoin in which transactions would be conducted off-chain via peer-to-peer payment channels.

The idea of Lightning Network is to create ordinary bitcoin transactions, but exchange and keep track of them on a bilateral basis. Only in case of a dispute with the counterparty would these transactions be broadcast to the network for ‘settlement’, i.e. inclusion in the blockchain. This is similar to how contracts work in the commercial world: parties enter into agreements bilaterally and only go to court if a disagreement cannot be resolved amicably.

For more on scaling Bitcoin transactions per seconds to millions, see this Medium post by Nic Niedermowwe of Prime Factor Capital.

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