User:Shiftchange/Lightning Network

The Lightning Network is an extension of the bitcoin cryptocurrency which aims to improve the privacy and scalability of the bitcoin network. Bitcoin is an open platform for money. The Lightning Network is a decentralised generalized platform which is open sourced and currently in development.

It is a protocol for scaling and speeding up any blockchain. The Lightning Network exists as a layer on top of the bitcoin network to securely facilitate and simplify regular payments between parties. These bidirectional payment channels consist of multi-signature addresses stored locally separate from the bitcoin network until the channel is closed. Channels are closed when ongoing business arrangements have been concluded, another party ceases to cooperate, respond in a timely a fashion or make payment. In theory and in testing early builds of the network can scale to transactions rates of millions of times per second.

Development
Joseph Poon and Thaddeus Dryja published a whitepaper for the network in 2014. It was conceptualised the year before, as an extension of the hub and spoke payment channels idea. It outlined a method to enable millions of transactions per second. The Lightning Network can only function to a wide audience if the bitcoin network underneath has increased its current capacity. There are some drawbacks. Funds must be allocated up-front based on an estimation. Over-estimation may occur, leading to funds being locked up. If a user relies on a single connection to the network and that connection refuses to pay, all other payments will fail. In 2016, standards were developed aimed at drafting interoperability specifications between eight in-progress implementations of the network protocol.

Features
The software promises new forms of online transactions. Initial and final transactions reside on the bitcoin blockchain. Unconfirmed transactions are stored locally. Funds may be payable until after a period of time. Double spending is prevented and typically uses 2-of-2 multisignature configurations. It supports micropayment transactions of infinitesimal value at near-zero cost. It allows instant fraud-proof confirmations. I

Smart contracts
The Lightning Networks main feature is enabling of smart contracts. It is simultaneously inter-operable with non-bitcoin based blockchains that have smart contract features. These are contracts which have mathematical certainty and are executed with absolute precision and security. It is designed to accommodate a wider range of user preferences than bitcoin allows. Smart contracts are a way for parties to agree on how business is conducted and matters settled and then seal settlement automatically. First parties must agree upon the formalities within the contract, possibly including an agreement on how to pay the fee to the bank for their service. An exchange of an initial receipt stating the details of the contract follows. Any setup including depositing of funds by a payer is conducted. Transactions proceed with each party keeping receipts, signed by the other party which notes the latest change in values and remaining balance available. In this way a ledger is formed. Value is represented in receipts. At any time the account settled be either party when a second signature is supplied. The bank does not need to know any details of the transaction, only the final balance. Before settlement occurs all parties must agree on the final transaction date and time so as to prevent fraud. Fraud can be proven if there is a receipt with transaction date later than the one presented.

Implementations
In May 2016; there were three companies developing lightning protocols. The first usable implementation of the Lightning network began in May 2016 by Blockstream. Rusty Russell commenced work on a project in March 2015.

ACINQ, a French startup successfully tested the routing payment method developed by Bitfury who had released a whitepaper in July 2016. This implementation built on the concept of gaining knowledge of a local network cluster as well as a major beacon node for payment routing. Colu released a demonstration for its version with enables digital assets.

Blockstream developed a key technical hurdle involving reciprocal peg or two-way peg between the bitcoin blockchain and a sidechain. It is called Thunder and uses the "Sphinx" protocol mask routing data from all intermediaries. The model for the network is based on formalised payment channels. That is, legal contracts between two or more parties that are enforced by the bitcoin network using a strict set of rules. Specifically these are time-locked, hashed smart contracts. Unconfirmed transactions tack place off-chain but are still dependent on an already-existing and confirmed funding transaction.