Bitcoin’s dilemma: You are likely very aware of the promise and potential that came with the emergence of Bitcoin, and it is equally possible that you have also wondered why, despite its astounding growth, it has not quite yet gained mass adoption. Some point towards regulation, others towards technological complexity, and they are not wrong, but there is a more fundamental issue at hand: large scale transactional functionality.
Given that the Blockchain can only process a limited number of transactions per second, as demand rises, so does the price of transacting (it could get as high as $60). Additionally, the confirmation time for a single transaction can go upwards of 1 hour. These two limitations (price and time) make the Bitcoin Blockchain unusable as peer-to-peer cash or in a day-to-day retail situation. Bitcoin, essentially conceived as peer-to-peer electronic cash, cannot serve that purpose by itself on a large scale. That is where the Bitcoin Lightning Network comes in, and it has essentially revamped both the cost and time of transacting.
A Solution in Layers: The Lightning Network, a second layer routing network built on top of the blockchain, enables the Bitcoin network to process millions of transactions per second, which in turn makes transactions substantially cheaper (as low as a few satoshis).
How does it work? By interconnecting payment channels. In simple terms, two people that want to transact connect with each other (or to the Lightning Network) and create a “payment channel” outside of the Bitcoin blockchain. They can then send bitcoin back and forth as much as they want before closing the channel, which then broadcasts only the final balance (the latest valid contract) to the Blockchain for a final settlement instead of the many transactions that would have happened otherwise in between. Once enough people have opened channels, the algorithm finds the most efficient pathway from any user to another person without needing to create a new direct connection. This collection of pathways is the Lightning Network.
From theory to reality: Some companies have realized the potential of the Lightning Network to create real-life use cases and have consequently started to provide users with accessible and powerful interfaces. One such company is Lastbit, which has developed two Lightning-based apps: Lite and Cards. Through Lite, they facilitate instant Bitcoin and Euro payments for anyone. Through Cards, users can use virtual and physical debit cards to use their Bitcoin in real-world scenarios, where the recipient would normally only accept Fiat currency (Euros, at the moment).
What do these kinds of applications mean for people? Lightning-based apps enable key use cases for users. Among them we can count:
- Instant Bitcoin Transactions: as opposed to the many minutes required when using just the Blockchain.
- Full Bitcoin-Fiat Interoperability: Going back and forth from one to the other with ease.
- Cost-effective microtransactions: which are financially unfeasible with Blockchain fees.
- Upfront Payments: under normal circumstances, paying with Bitcoin requires waiting for the transaction to clear, which may take a while, and is unviable in store queues.
Going beyond individuals, it also comes with new use cases for businesses:
- Receiving payments from Bitcoin users, even without accepting Bitcoin per se.
- Bypassing conventional payment networks by incorporating Lightning Network based payment infrastructures.
- Handling global transactions with much more ease, at lower costs, higher speeds and with more security.
What does it all mean for Bitcoin Adoption? In brief, Lightning Network based apps, such as Lastbit, have the potential of making Bitcoin accessible to mainstream users by finally enabling scalable, instant, last mile Bitcoin transactions. People will finally be capable of spending their Bitcoin at will, of going back and forth from Fiat without relying on complex and often lengthy processes, and of using it as peer-to-peer electronic cash.
In brief, this new generation of apps has the potential of breaking down the technological barriers that have sequestered Bitcoin from the general population, so that it can finally gain mainstream adoption and gain its true, intended transactional nature. Bitcoin adoption might well be at the brink of spreading at yet unseen proportions.