Sunday, January 17, 2021
Finance

Shortcomings of Bitcoin’s Lightning Network

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The introduction of the lightning network (LN) changed a lot in the bitcoin transactions. It is the second layer that enables off-chain transactions on bitcoin, and its development has very much accelerated.

However, the lightning network doesn’t solve every problem in the bitcoin network. Expectations should be tempered.

The following are the biggest problems that the lightning network experience.

Bitcoin’s Transaction Fee Problem Unsolved

The lightning network is usually boasted as the solution to the problem of bitcoin’s increasing transaction fees.

Its supporters claim that the transaction fees, which are one of the direct results of bitcoin’s clogged network, will decrease as the lightning network takes the transactions away from the main blockchain.

However, bitcoin’s congestion is only one of the several factors that affect the transaction fees. Apart from that, the cryptocurrency’s fee in itself is a large component of the lightning network’s total cost.

To be specific, there are two parts to the costs. The first part is made up of a fee equal to bitcoin’s transaction charges in order to open and close the channels between the parties.

Also, there is a separate routing fee to transfer payments between channels. At present, the latter fee is set to zero since there are very few nodes that use lightning.

For a time, it is expected that the routing fee will remain low for a long time because the network is pretty much scalable.

However, it is still possible for fees to increase due to reasons other than the lightning network.

Remaining Online Compromises Nodes

The nodes on the lightning network are always online at all times. This is needed to send and receive payments. The cold storage of coins, which is perceived as the safest method of storing cryptocurrencies, is also impossible on the lightning network.

As a result, the requirement makes the network susceptible to hacks and thefts.

Going offline also triggers another set of problems for the lightning network. It’s possible for one of the two parties from a channel to close that channel and take the funds while the other is away. This is called the Fraudulent Channel Close.

Another expert says that going offline could also threaten to bring down the network. According to the expert, the biggest issue in the lightning network is the “increased centralization” by concentrating funds in certain nodes within the network.

Network Effect Problems Unsolved

The arrival of the lightning network is also expected to signal the digital currency’s utility for daily transactions.

Customers will be able to open payment channels with businesses or people that they most often transact and do business with.

However, bitcoin still needs to solve a lot before it gains mainstream adoption. The spike in transaction volumes in the previous months is primarily linked to the increase in transaction volume.

As a result, the overall effect of the lightning network on decreasing bitcoin’s transaction fees may be limited.

According to an economist, even though the lighting network speeds up transaction time, there is still a question of how widely it will be used.