The below is from a recent edition of the Deep Dive, Bitcoin Magazine’s premium markets newsletter. To be among the first to receive these insights and other on-chain bitcoin market analysis straight to your inbox, subscribe now.
“Bitcoin itself cannot scale to have every single financial transaction in the world be broadcast to everyone and included in the block chain. There needs to be a secondary level of payment systems which is lighter weight and more efficient.” – Hal Finney
In today’s Daily Dive we examine the growth of the Bitcoin Lightning Network. The Lightning Network is a decentralized second-layer scaling solution built on top of the Bitcoin network that allows for cheap payments between counterparties. The Lightning Network can essentially be thought of as a bar tab between counterparties, with the opening and closing of the tab serving as the equivalent of an on-chain bitcoin transaction. The proverbial “bar tab” is constructed using a 2-of-2 multisig wallet, which allows for users to take control of their funds in case of a hostile counterparty.
While the Lighting Network does enable private channels between counterparties, the total balance locked in these channels is not public, which is self-explanatory. Thus, in our analysis we will focus on public channel capacity, but it is important to remember that this is not counting the potentially large channels set up between counterparties that are private.