The activation of segwit on the bitcoin network in the next few days will check all the boxes for bitcoin to work on the lightning network. The lightning network is a layer 2 network that works on top of the bitcoin blockchain. Using lighting, it is possible to achieve millions or even billions of transactions per second, making lightning a promising solution to the ongoing bitcoin scaling debate.
In order to make a lightning transaction, one is required to open a lightning channel. This can be achieved by putting funds into a two-party, multisignature bitcoin address, which is auditable on the bitcoin blockchain. The current balance of a channel is stored as the most recent transaction signed by both parties, spending from the channel address.
Basically this means that two or more parties can commit a certain amount of bitcoin to transact with each other on the blockchain to create an ‘lightning channel’. Using bitcoin smart contract features they can transact within the channel instantly and because these transactions are settled off blockchain fees are exceptionally low.
Zap wallet is one of the first wallets to provide a lightning interface. Jack Mallers, the creator of the wallet, provides a walk through of lightning functionality.
We see that he opens a channel and waits for it to be confirmed on the bitcoin blockchain. Once the channel is open, Jack demonstrates an instant micropayment of 0.000001 BTC over the lightning channel with no fee.
The reason microtransactions are interesting is that it enables new ways to think about the day to day use of money and transacting. In Andreas Antonopoulos’ talk ‘Bitcoin, Lightning, and Streaming Money’,
Andreas explains that money acquires the characteristics of its container. The reason we are paid our salary monthly is because it is not economically feasibly in the current banking system to be paid in more frequent installments.
Andreas highlights phenomenon of streaming has become a popular mechanism for us to consume content. Through the use of music streaming services, it has changed the way we experience and discover music. This is because the container of music changed from limited to just mp3’s stored on your iPod to the vast media collection form your streaming provider which you can stream what you like whenever you like over your 4g connection.
Thinking about the effect of the medium of transfer of value has, one could apply a perspective from Marshall McLuhan’s renowned 'The medium is the message'.
Andreas then proposes, ‘What happens when we start streaming money?’ which can open possibilities like streaming your salary in 1 minute installments. This way of thinking about transacting value is new and it can open up new possibilities to change the nature of money just as streaming has changed the nature of movies and music. Andreas concludes ‘I don’t know what that will be yet, but i do know one thing, it's going to be big’, I think so too.
