What Is The Bitcoin Lightning Network And How Can It Benefit My Business?

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The Bitcoin Lightning Network explained

Bitcoin (BTC) has a lot going for it, but one thing it isn’t is quick.

Transactions can take time to process, making it impractical for many businesses, and the fees can be high.

This means BTC faces an uphill struggle to widespread adoption, compounded by the issue of scalability and the number of transactions the blockchain can process at any given time.

This is where the Lightning Network comes in.

The Lightning Network is what’s known as a ‘layer two’ network which adds another level of functionality to the main blockchain.

It enables transactions to be made through a peer-to-peer system, rather than on the main blockchain, which drastically reduces the processing time.

These are called ‘off-chain’ transactions, yet despite not being on the ‘mainnet’ (layer one – the main Bitcoin blockchain), they enjoy the same level of security.

Lightning Network pros and cons

The advantages of the Lightning Network are many, according to its supporters.

They include:

• Scalability. As I’ve already mentioned, this has been a problem that’s dogged Bitcoin  for several years as it’s grown in popularity. The Lightning Network has the potential to change this.
• Lower fees. Settling transactions off-chain should lead to lower fees.
• Micropayments. The lower fees, together with the scalability, will enable millions of small transactions to be made at any given time, especially useful for small businesses.
• Speed. The off-chain nature of Lightning Network transactions means they can be settled almost instantly, rather than waiting for them to be process through the mainnet.
• Increased anonymity. The transactions on a Lightning Network are encrypted and 100% anonymous.

Disadvantages of the Lightning Network:

• Hacks. Using a process of off-chain settlements has the potential, however unlikely, for malicious actors to disrupt the network.
• No offline support. Lightning Network users must be online at all times to complete a transaction, unlike the Bitcoin mainnet. They must also use their private keys to sign each transaction which creates a potential security issue.
• Price volatility. The large price swings routinely seen in the Bitcoin market impact the Lightning Network as well making it difficult to predict the future worth of payments.
• Reduced fees. Some people actually see this as a disadvantage. The reason for this is that once all of the 21 million Bitcoins that can ever exist have been mined, the only reward for the miners who maintain the blockchain are the fees.
• Dormant funds. In order to use the Lightning Network funds have to be held in a ‘channel’ ready for use. This means they can’t be deposited in an interest account or any other income generating financial product.

Should my business use the Lightning Network?

A growing number of businesses in the UK and worldwide are adopting crypto as a form of payment.

There are many advantages to this, which I’ve written about here, and the Lightning Network only makes it easier and more cost-effective for businesses.

The Lightning Network is especially useful for small businesses, especially those selling low value items, such as crafts or coffee, where transaction costs are more important.

If you’re planning on adopting crypto and you want fast transaction times and low fees then the Lightning Network is for you.

You may also like: Where can I spend my crypto in the UK?

How do I use the Lightning Network?

Using the Lightning Network involves setting up a compatible Bitcoin wallet and funding it with either cash or BTC.

Those new to the world of crypto should start with a custodial wallet, ie one managed by a third-party. Advanced users can use a non-custodial wallet which they administer themselves.

If you’re a business looking to accept Bitcoin via Lightning Network payments, you’ll need to generate Lightning Invoices through your wallet app to send to your customers.

Once they’ve made payment you should receive the funds almost instantly, rather than waiting for multiple ‘network confirmations’ on the main Bitcoin blockchain.

Remember, you need to be online to use the Lightning Network and once a transaction is settled it can’t be altered or cancelled.

You may also like: How to safely store your Bitcoin seed phrase

What are the best Lightning Network wallets?

There are dozens of Lightning Network compatible wallets available and it’s important that you do your own research to find the one that’s right for you.

However, here are a few names that consistently score highly among users:

• Wallet of Satoshi
• Blue Wallet
• Muun
• Breez
• Zap

All these wallets offer apps for Apple and Android smartphones and tablets.

I’m also going to give a mention the Zeus wallet, a relative newcomer that’s already gathering a loyal following, particularly in the UK.

Recently opened Bitcoin café, Satoshi’s Place, is championing the app as part of it’s drive to make micro crypto transactions a breeze for everyone.