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The Lightning Network Explained, Part I: How to Build a Payment Channel

By Christoph Bergmann Apr 29, 2017 12:24 PM EDT

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What is the Lightning Network? We try to make this crazy piece of Bitcoin scaling technology understandable for everybody. The first part is about the basic unit of Lightning, the Payment Channels. How are they built? Why do they make it possible to send bitcoins without miners? And how do they avoid the need to trust a counterparty?

When it comes to the Lightning Network, many people only say the best and best of all about it. Lightning can solve any scalability problem Bitcoin ever had and will ever have, will make transactions confirm immediately and fundamentally increase privacy.

This is said, and basically, this is correct. But if somebody promises you to explain Lightning “very easy,” you should be sure to be in contact with a liar. Lightning Network is never easy, but always monkey-complicated. While investigating the topic, the author spun several new knots in his brain, and it will be unavoidable that the brave reader will do the same. But these articles try to make it as easy as possible.

With Bitcoin, Every Node Cooks its Own Soup

To understand the Lightning Network you have to start with the Bitcoin network. Precisely with the fact that Bitcoin is a broadcast network, which means that everybody does everything. Every node receives, validates, stores and relays every transaction. This has its need in Bitcoin, but it obviously is creepily ineffective.

Imagine you have a travel group of 250 people traveling from Milan to Stockholm, and everybody uses their own car. Or a group of five pupils has to solve together five math problems, but instead of exchanging the results, everybody works through all tasks. Or, to present a last analogy; seven guests each download the same recipe for asparagus soup, print it out, buy the ingredients at the same


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