Lightning Network: How It Is Going to Affect Bitcoin and Litecoin

The Lightning Network is designed to make blockchain transactions instant and cheap. Many crypto enthusiasts believe that the Lightning Network will bring new solutions that will affect a lot of currencies. How can the lightning network change Bitcoin and Litecoin?
Lightning Network

There’s no secret that Bitcoin suffers from slow and expensive transactions. In December 2017, an average transaction fee was over $30 and a confirmation process was taking about 30 minutes! Now the numbers are much lower, but scalability remains the biggest issue Bitcoin has yet to solve.

Many crypto enthusiasts believe that the Lightning Network will bring new solutions that will affect a lot of currencies. It is an off-chain technology, which can significantly decrease both the speed and the price of BTC transaction. However, some claim that it will be not Bitcoin but Litecoin benefiting most from its launch. In addition to fast and cheap transactions, the technology introduces so-called ‘atomic swaps’ that allow for cross-chain cryptocurrency exchange. As Bitcoin and Litecoin are among the first to utilize the LN upgrade, the level of interoperability between the two coins will increase. In layman’s terms, with the Lightning Network implementation, the number of ways to exchange Litecoin for Bitcoin and vice versa will increase. Let’s say, if a BTC holder wants to use a cheaper LTC for daily micro-payments, they do not need to go for a crypto exchange to buy Litecoin first; they can simply perform an atomic swap between two blockchains. Seems catchy, doesn’t it? Let’s go deeper into how the Lightning Network works and how it will change the balance of power in the crypto market.

What is the Lightning Network?

The Lightning Network is an off-chain system of payment channels powered by smart contracts and designed to facilitate direct deals between users. It can work on Bitcoin’s blockchain or any other, and be used to exchange different coins cross-chain owing to the Atomic Swaps technology. The Lightning Network wallet address is accessible to two users who want to make a deal – they input the number of coins to be spent and confirm the transaction. The contract will be finalized only when both parties sign it. At any time, any user may close their unique channel, so the latest information about transactions and balances will be sent to Bitcoin’s blockchain.

What does this mean for regular crypto investors? Using the Lightning Network, they can make deals without synchronizing with blockchain all the time. Data about transactions will be transferred via off-chain payment channels.

How will it affect Bitcoin?

The Lightning Network was designed to make payments more convenient and attract more users. This system may be completely game-changing for Bitcoin. For now, most users consider BTC as a store of value but not as a payment method because of the high fees and slow processing times. With the Lightning Network, Bitcoin will be able to become cheaper and more efficient, which is going to be a clear competitive edge over some altcoins.

Transaction speed

Bitcoin’s blockchain is based on the Proof-of-Work algorithm. It means that miners confirm on-chain transactions. They can decide in which order to verify deals and will obviously choose ones with higher fees first.

How the Lightning Network can help here? It eliminates miners’ verification step and increases the speed of transactions’ processing. Off-chain deals will be done instantly.

Micro-payments

Bitcoin – the current price of which is over $6,400 – can be divided into smaller parts called Satoshis. One such unit is equivalent to 0.00000001 BTC. As you can see, a lot of Satoshis are needed to form even the tiniest sum in cents.

At the moment, the fees are too high which makes small deals inefficient. Say, an average fee of $0.2 makes purchasing coffee or paying for a subway ticket with BTC unreasonable. In contrast, Litecoin offers $0.04 fees, which makes it a perfect cryptocurrency for micro-payments.

Implementation of the Lightning Network can result in reducing fees and making micro-payments with Bitcoin more realistic. All transactions will be based on smart contracts, and the system itself will control the processes.

Possible drawbacks

Behind its intention to solve the fees problem, there are some controversial features in the Lightning Network. It has its own fees for opening and closing a payment channel and for transferring assets between channels. At the moment, the latter fee is zero, but the situation can change.

Also, the Lightning Network usage can result in making more on-chain transactions if your wallet fails to find a route to the receiver. In this case, a user will have to make two transactions of opening and closing a channel in order to meet a payment eventually.

There’s also an issue of how widely it will be used which is linked to the general adoption of cryptocurrencies.

How will it affect Litecoin?

Litecoin is considered to be silver in the world where Bitcoin is viewed as digital gold. Originally, LTC is Bitcoin’s fork designed to provide faster and cheaper deals.

What impact can the Lightning Network have on this currency? Skeptics claim that it will disintegrate Litecoin as investors will prefer using fast and cheap Bitcoin as more famous and trusted asset. If BTC will actually solve its scalability issues, nobody will need other currencies to perform the same tasks.

On the other side, optimists argue that Litecoin can survive as a secondary chain. The project’s founder Charlie Lee claims that LTC will always remain cheaper and faster than BTC, and the Lightning Network can only contribute to Litecoin’s wider adoption.

To sum it up

The Lightning Network is designed to make blockchain transactions instant and cheap. While the major cryptocurrency still tries to deal with the problem of scalability, this technology seems to offer a solution. But it could be not that simple. The success of implementing the Lightning Network depends on various factors: the general crypto adoption, the usage of altcoins that provide speed improvements and lower fees compared to BTC, or contradictions over the technology’s nature itself.

Don't miss a thing!

Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All

Top Promotions

Top Brokers

IMPORTANT DISCLAIMERS
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
RISK DISCLAIMER
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.
FOLLOW US