Lightning Network
Proposed in 2015, the Lightning Network went live on May, 10 2017 when Christian Decker made the first payment using it. It was built to be a permissionless layer 2 scaling solution for the Bitcoin network.
Designed to batch process lower value transactions that don’t individually require the same level of security Bitcoin’s core network provides. Processing small transactions in groups this way was devised as solution to their becoming uneconomically viable. As mining costs rose in response to Bitcoin’s increasing hashrate.
To utilize Lightining, users open a channel on the network with a funding transaction processed on the Bitcoin network. Users defer further communication with the Bitcoin network until they are ready to close their channel. Settling transactions made with other Lightning users directly within the channel they’ve opened.
A variety of smart contracts exist to ensure the Lightning network processes transactions efficiently and funds remain secure until ultimate settlement back to Bitcoin. While designed to be accessible, using these contracts requires channel users to invest in hardware with robust enough capabilities to ensure their proper functioning.
This includes:
- A high uptime server
- Secure hot wallet
- Continuous back up of data
These requirements are dictated by the need to refute malicious actors who attempt to manipulate transaction data. Say a user sends a payment for something. But, then attempts to broadcast a prior state to the network excluding a record of this transaction. Attempting to erase the payment of the funds being withdrawn from their wallet.
The user who received payment needs to refute this broadcast by confirming the transaction. To ensure they can do this if the need arises. They must be continuously connected to the Lightning network with readily accessible data showing the record of payment.
When successfully challenged, users like this who broadcast manipulated transaction data to the network. Lose their balances to disincentivize this behavior in the first place.