When people discover the limitations of an existing technology, they naturally look for ways to improve.
The publicization of Bitcoin by Satoshi Nakamoto in January 2009 permanently changed the way money and the internet transact. With a strong foundation of new financial technology based on completely open source platform, it does not take long for a series of new coins to be released with different results. As the first blockchain of blockchain technology, Bitcoin is considered a digital currency that produces thousands of other coins.
Other coins emerged with names like Litecoin, Ethereum, Namecoin or Dogecoin. Each coin is slightly different, but in general inherits the genes of Bitcoin’s ancestor: they all depend on a distributed network to send and receive financial transactions, and the nodes on the network are responsible for verifying each coin. transaction.
With whatever digital currency one chooses, this kind of technology can transmit it anywhere with no geographical or political restrictions.
But transactions are not always fast and inexpensive. Sending and receiving crypto within a blockchain native network, with no additional add-ons, is called an on-chain transaction. While these transactions can happen exactly as the system designed them to, they can sometimes be slow and expensive to conduct. Therefore, people began to choose the solution of adding a second layer to improve.
“Second layer” means the projects, platforms, and protocols that work on top of the underlying blockchain to support the underlying technology and user experience.
“Off-chain” represents a transaction that takes place outside of the main blockchain and is not counted as the main block.
The most intuitive form of a second layer transaction (off-chain) is the two parties agreeing to hook up. If we establish that I owe you one Bitcoin then our agreement is a valid “transaction” as proof that we trust each other.
If we agree on the total number of times I take you out to lunch and sign the debit card for each, this means that it defaults to subsequent engagements.
Nothing touches the blockchain, and the generally invisible “transaction time” is instantaneous – we just need to do the math and agree to own the rest. At any given time, we can establish residual ownership with a single on-chain transaction to represent all the activities leading up to this single payment. But a second layer solution (like this basic example) adds enhancements to a block that go beyond the initial vision of the developers, or beyond what they designed for a particular blockchain. . When users of a public blockchain think this is a limitation, they look for the answer at the second layer.
Transactions on the second tier are faster and cheaper than on-chain competitors.
Yes, the Bitcoin blockchain opens up a new paradigm for sending and receiving money, but those who want to use it as a mainstream daily payment solution just feel like a no-brainer. Cash payments are made continuously, and the receiver only needs to count the money to confirm that he has received enough. Credit card payments are both fast and efficient – the cashier simply swipes your card through the machine and the payment is confirmed (or declined) in less than a second.
This is an exciting experience that many people want in Bitcoin, but on-chain transactions are not yet ready.
Bitcoin in mainstream payments is like asking the cashier to wait up to 10 minutes to confirm your credit card payment. Crypto technology relies on a distributed network scattered around the world that has to verify transactions. It will take quite a while for all network nodes to synchronize with each other. Fortunately, a convincing off-chain solution solves this problem.
Bitcoin’s Lightning Network is a prime example of a second-tier solution.
Draw a network similar to the internet to illustrate how the Lightning network works. Today’s on-chain transactions are like the internet in the 1970s. If you want devices to “talk” to each other, they must have a wired network connection. It’s no big deal if it’s just two or three devices, but the internet is a global network. The number of network devices has only increased, and quickly becomes unstable if network cables run everywhere. This leads us to have to route the internet – and the connection between the two computers doesn’t have to be direct.
Data can pass through intermediary devices before reaching its destination, like a delivery company delivering mail between two people without the two having to meet to deliver the letter.
Bitcoin’s Lightning Network is the routing blockchain for internet technology. It has the simple task of allowing a large number of crypto wallets to talk to each other without connecting in a “wired” fashion – it sees all parties connected to the network as one. Anyone can open a Lightning channel to trade BTC with each other quickly.
Since on-chain transactions require time and cost to execute, the parties to a Lightning channel allocate a design amount of crypto (say 1 BTC), and the channel keeps track of the balance. accounts over time.
If I want to send 0.1 BTC, the Lightning channel will update the balance to 1.1 BTC and 0.9 BTC. If someone else wants to send me 0.5 BTC back, the updated balance is 0.6 BTC and 1.4 BTC. In visual parlance, the Lightning channel keeps track of it all on a piece of paper, listing out old balances and writing in new balances each time we transact. And fast.
Second layer trading is becoming more and more popular.
Since the second layer solution overcomes Bitcoin’s weakness, Lightning does not depend on confirmations coming from a distributed blockchain. It is therefore faster and cheaper to transact.
It is appealing to those who want to trade crypto because even though it is money – it is not a replacement for on-chain transactions, but a great improvement to it.
The original scope of blockchain technology (described by Satoshi Nakamoto) was nothing more than a radical new and inclusive economy. Second tier transactions just add new capabilities to that technology, making it more user-friendly and reducing the pain that exists during inter-chain transfers and interactions. Even though it is a kind of “after-market” solution, it still makes Nakamoto’s invention more versatile and powerful.
For those involved in crypto, the appeal of off-chain is clear. Faster payments will attract more participants – second layer solutions make the right technology more mainstream.
Bitcoin Magazine | According to Philip Salter from Hackernoon.com
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