Introduction to Lightning Network
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The document introduces the Lightning Network as a solution to Bitcoin's scalability problems. It explains that Lightning Network creates payment channels between parties that allow for fast, low-cost transactions without broadcasting to the blockchain. Transactions are enforced through smart contracts. This allows the network to potentially process millions of transactions per second through payment hubs and routes. It outlines several open source Lightning Network implementations that are being developed to support the network.
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Introduction to Lightning Network
- 1. Credit pcwallart.com Introduction to Lightning Network Blockchain Association of Ireland 6th Dec 2017 Alan Carbery
- 2. Credit pcwallart.com Contents Bitcoin scalability revisited Lightning Network introduction How it works Different networks and use cases Open source projects Conclusion & Questions
- 3. 3 Blockchain under pressure • Transaction fees high and volatile. • ~€15 on 12th November • Confirmation times unpredictable and long • Paying for coffee on the blockchain is no longer possible Credit ibtimes.co.uk
- 4. 4 • 1MB blocksize. • 10 minute average block confirmation time • Large statistical variations in block confirmation time • Full copy of blockchain required by each node. • Transactions broadcast to all nodes. • Permissionless, consensus driven. • Global consensus required for upgrades. Evolution is slow. Technical limitations of Bitcoin Credit globalpmsystems.com
- 5. 5 In 2025 miner rewards reduced to 3BTC per block and transaction fees become the incentive. Without competition between transactions for the next block the fees won’t be high enough to sustain the miner network. A secure network requires high fees. Blockchain requires constraints for security
- 6. 6 • Time critical trades and payments are difficult (and stressful!) • Can’t be used for small payments. 1% fee to send €300. 10% fee for €30. • Cheaper and faster to transact in custodial off-chain systems (e.g. exchanges and wallets). Puts funds at risk. Effects on users
- 8. 8 Lightning in a nutshell (More later!) 2ed98a4640ddca869b02 … 640ddca862ed98a49b02 … 862ed98a4640ddca9b02 … 8a4640dd862ed9ca9b02 … 4640dd8628aed9ca9b02 … ddca862640ed98a49b02 … 2ed98a4640ddca869b02 … 640ddca862ed98a49b02 … 862ed98a4640ddca9b02 … 8a4640dd862ed9ca9b02 … 4640dd8628aed9ca9b02 … ddca862640ed98a49b02 … 2ed98a4640ddca869b02 … 640ddca862ed98a49b02 … 862ed98a4640ddca9b02 … 8a4640dd862ed9ca9b02 … 4640dd8628aed9ca9b02 … 2ed98a4640ddca869b02 … 640ddca862ed98a49b02 … 862ed98a4640ddca9b02 … 8a4640dd862ed9ca9b02 … 4640dd8628aed9ca9b02 … ddca862640ed98a49b02 … 2ed98a4640ddca869b02 … 640ddca862ed98a49b02 … 862ed98a4640ddca9b02 … 8a4640dd862ed9ca9b02 … 4640dd8628aed9ca9b02 … • Layer-2 protocol (ie. Operates outside the blockchain) • A network is made up of payment channels. No trust needed. • Each channel is funded by a confirmed bitcoin transaction. • Payments are made by agreeing new balances through the exchange of crypto messages outside the blockchain. • Payments can be routed through the network by paying fees to intermediaries.
- 9. 9 What’s so good about Lightning Network? • Lightning-fast Payments. Transactions complete within milliseconds. No blockchain needed to complete a payment transaction. • Secure. Backed by confirmed blockchain funding transactions. Enforced by smart-contracts. • Trustless. Protocol does not require trust between parties. Everyone is incentivised to play fair and punished for foul play. No trusted custodians required. • Scale. Millions of transactions per second. (Visa network max is 24K txn/sec) • Low Cost, lightweight hardware. No Proof of Work mining or specialised hardware required for payments. Standard x86 platforms can be used. Potential for deployment on mobile phone (in theory). • Low fees. Low risks and costs allow for low fees. Allows instant micropayments. • Cross Blockchains. Cross-chain atomic swaps can occur off-chain instantly with heterogeneous blockchain consensus rules. Eg. Between bitcoin and litecoin.
- 10. 10 2ed98a4640ddca869b02 … 862ed98a4640ddca9b02 … 8a4640dd862ed9ca9b02 … 4640dd8628aed9ca9b02 … ddca862640ed98a49b02 … 2ed98a4640ddca869b02 … 640ddca862ed98a49b02 … 862ed98a4640ddca9b02 … 8a4640dd862ed9ca9b02 … 4640dd8628aed9ca9b02 … 2ed98a4640ddca869b02 … 862ed98a4640ddca9b02 … 8a4640dd862ed9ca9b02 … 4640dd8628aed9ca9b02 … ddca862640ed98a49b02 … $10 Alice and Bob payment channel 2ed98a4640ddca869b02 … 640ddca862ed98a49b02 … 862ed98a4640ddca9b02 … 8a4640dd862ed9ca9b02 … 4640dd8628aed9ca9b02 … ddca862640ed98a49b02 … 2ed98a4640ddca869b02 … 640ddca862ed98a49b02 … 862ed98a4640ddca9b04 8a4640dd862ed9ca9b02 … 4640dd8628aed9ca9b02 … ddca862640ed98a49b02 … 2ed98a4640ddca869b02 … 640ddca862ed98a49b02 … 862ed98a4640ddca9b02 … 8a4640dd862ed9ca9b02 … 4640dd8628aed9ca9b02 … 69b02 49b02 a9b02 BobAlice $5 $5 $5 $5 2ed98a4640ddca869b02 … 862ed98a4640ddca9b04 Lightning Protocol Refund Alice: $5 after 1 week Refund Bob: $5 immediately Refund Bob: $5 after 1 week Refund Alice: $5 immediately 2ed98a4640ddca869b02 … 862ed98a4640ddca9b04 Refund Alice: $4 after 1 week Refund Bob: $6 immediately Refund Bob: $6 after 1 week Refund Alice: $4 immediately Funding: $10 (both sign) $4 $6 2ed98a4640ddca869b02 … 862ed98a4640ddca9b04 Refund Alice: $3 after 1 week Refund Bob: $7 immediately Refund Bob: $7 after 1 week Refund Alice: $3 immediately $3 $7 Pay Alice $3 Pay Bob $7 $3 $7
- 11. 11 How does it work? Some key concepts … • Unconfirmed transactions. Transactions can be constructed and signed but not broadcast to the blockchain. • Double-spend protection. Can build many transactions but only one will ever be confirmed. • Bitcoin script language. Build intelligent smart contracts. # To you with revocation key OP_DUP OP_HASH160 <RIPEMD160(SHA256(revocationkey))> OP_EQUAL OP_IF OP_CHECKSIG OP_ELSE <remotekey> OP_SWAP OP_SIZE 32 OP_EQUAL OP_NOTIF # To me via HTLC-timeout transaction (timelocked). OP_DROP 2 OP_SWAP <localkey> 2 OP_CHECKMULTISIG OP_ELSE # To you with preimage. OP_HASH160 <RIPEMD160(payment_hash)> OP_EQUALVERIFY OP_CHECKSIG OP_ENDIF OP_ENDIF OP_IF # Penalty transaction <revocationkey> OP_ELSE `to_self_delay` OP_CSV OP_DROP <local_delayedkey> OP_ENDIF OP_CHECKSIG
- 12. 12 How does it work? Some key concepts … • Multi-signature addresses. Both keys required to unlock. • Timelocks. Some outputs (i.e. coins) can only be spent after a time period. • Hash values and secrets. Some outputs are hash locked and require the secret. Funding: $10 (both sign) 862ed98a4640ddca9b04 Refund Bob: $5 after 1 week Refund Alice: $5 immediately 2ed98a4640ddca869b02 …Refund Alice: $5 after 1 week
- 13. 13 Bob Alice Carol $10 $0 $10 $0 $9 $1 $9 $1$8 $2 $8 $2 $7 $3 $7 $3 Alice, Bob and Carol payment network
- 14. 14 Different networks. Finance models. Use cases.
- 15. 15 • Micro-payments, video content on demand • Micro-payments, pay as you go mobile phones • Payments processor (merchants and consumers) • B2B payments • Non-custodial exchange • Inter-coin atomic swaps Example Use Cases
- 16. 16 A payment from Bitcoin to Litecoin Bob Alice Carol $3 worth of BTC + fee $3 worth of LTC Enforced on Bitcoin blockchain Enforced on Litecoin blockchain Bob acts as exchange
- 17. 17 Lightning Network draft RFC • Specifications draft under construction https://github.com/lightningnetwork/lightning-rfc • Currently under specification freeze as open source implementations are completed. • Main contributors are from 3 companies building open source implementations.
- 18. 18 • Lightning Labs building Lightning Network Daemon (LND) Written in Go https://github.com/lightningnetwork/lnd • Blockstream building c-lightning Written in C https://github.com/ElementsProject/lightning • ACINQ building Eclair Written in Scala https://github.com/ACINQ/eclair The Leading Projects
- 19. 19 • Bitcoin magazine article – Understanding the Lightning Network Further reading
- 20. Credit pcwallart.com The future? Disruption of today’s crypto-currency eco-system Digital businesses using bitcoin for payments Movement of assets between coins
- 21. Credit pcwallart.com Thank you! Alan Carbery contact details: acarbery@cascadenp.com www.linkedin.com/in/alan-carbery