Bitcoin’s Lightning Network is already revolutionizing how transactions are made, but it is also changing how Bitcoin mining works. Bitcoin’s Lightning Network feature can be used for a variety of functions and makes Bitcoin attractive to many users. Its impact on Bitcoin mining may be a secondary consideration but is certainly worth exploring.
Mining on Bitcoin is fully digital. Bitcoin miners are a decentralized network of computers that record all Bitcoin transactions in a public ledger for transparency. Miners also create new units of Bitcoin digitally with no third party involved. There is a network of participants, also called miners, who help record transactions on the blockchain. They use random sequences of numbers to record all transactions on the platform. Successful miners receive rewards in the form of Bitcoin or transaction fees.
The Lightning Network is a feature exclusive to Bitcoin designed to decrease transaction times and fees. It allows users to complete transactions off-chain, meaning they are not recorded on the blockchain. Off-chain transactions allow for reduced wait times and low-cost transactions. The Lightning Network was proposed when Bitcoin experienced an increase in popularity, which made for longer transaction times and significantly raised transaction prices. The Lightning Network solves these issues by allowing users to open Lightning Channels, private channels that can process off-chain transactions. The funds are automatically allocated when either of the participants closes the channel. The transactions are recorded but on a private ledger, not on the blockchain.
The Lightning Network is an attractive solution for many Bitcoin users. Besides the lower fees and faster transaction times, the Lightning Network also makes it possible for Bitcoin to support smart contracts. Smart contracts are transactions that have a script built in that allows the transaction to perform an additional function. Since Bitcoin’s script is not Turing-complete, users were unable to trade smart contracts before the Lightning Network was implemented. The Lightning Network filled this gap in the Bitcoin market and enabled the blockchain to compete with cryptocurrencies like Ether.
With lower transaction fees and private recording, the Lightning Network significantly impacts Bitcoin miners. The more users making transactions through Lightning Channels instead of on the blockchain, the less mining work there is to be done. Transaction fees are significantly lower on the Lightning Network—a bonus for the users making transactions but a hindrance to miners’ potential rewards. Any transactions not recorded on the public ledger and the blockchain present no opportunity for miners. While the Lightning Network makes sense as a means to help scale up business, it is not ideal for Bitcoin miners.
The Lightning Network has benefitted Bitcoin users in many ways but will change how miners work on the platform. The feature is necessary to keep Bitcoin competitive with other currencies but could change its customer base. Those who prefer mining may choose to go with another currency, but those interested in trading a wider variety of assets will embrace the changes.
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