Lightning Network aims to solve the scaling issue with Bitcoin. Before Segwit, Bitcoin protocol would form a 1MB size block every 10 minutes. Because of the cap on the size of the block the transactions that could be cleared per second were around 7-8.
WHAT SEGWIT DID AND WHAT SEGWIT2X TRIED TO DO
SegWit was invented in order to help shrink the file size of a Bitcoin transaction. Its purpose is to make the Bitcoin network approve more transactions with each block. Every Bitcoin transaction has three parts, who sent it, who receives it and a digital signature that verifies the sender has
the right to send the coins the signature is considered to be the witness for the transaction.
Segregated witness means that we are separating the witness from the transaction. In order to make the block smaller in size, the signature data or witness will be segregated in an extended block.
Since the consensus of the entire Bitcoin network isn’t required in order to make it work this is known as a soft fork meaning segment will work even if some users don’t update their software
to the new version making it much easier to implement.To conclude, SegWit is a method of scaling the Bitcoin network to confirm more transactions on each block without increasing the block size itself.
SegWit2X wanted to do take this further. It aimed to double the block size cap to 2MB. But for that, a hard fork was required. Meaning, along with miners approval for the updates made in the code, the nodes too must give their approval.
BITCOIN BLOCKCHAIN LIGHTNING NETWORK
The blockchain is an innovative technology. It offers decentralization, transparency, and shared ledger that is incredibly difficult to tamper. But as the blockchain keeps increasing and also the difficulty level, for mining to stay profitable, the fees for the transactions keep increasing.
The Bitcoin Blockchain Lightning Network aims to overcome the slow transaction rate and expensive transaction fees by making ‘off-the main chain’ transactions possible.
Imagine, if the main chain was a central ledger, the off-chains or payment channels are like a local ledger. The local ledger starts with a smart entry that is going to set the ground rules of how the local transactions would take place and ends with the final entry being registered on the main chain i.e. the central ledger.
What is the Lightning Network:
The opening of a payment channel eliminates the need to record every transaction on the main chain. Payment channels can be set to stay open as per the requirements of the parties involved.
A payment channel is created by an “opening transaction” where the parties involved make an equal deposit. The system is set up in such a way that trustless transactions are possible.
How payment channels work between two parties:
LIGHTNING NETWORK IS FAST AND SCALABLE
A payment channel is not just limited to function between two parties alone. Multiple payment channels can interact with one another enabling a network of interactions. Imagine a group of people who would maintain a local register for a week and record the weeks ending balance on the central ledger. This would mean the saving of a lot in fees and also quicker transactions.
How a network of payment channels can interact:
One of the major underlying issues with payment channels is that the funds get locked-in. The funds required for creating a payment channel increase when more parties are involved. Nonetheless, Lighting Network when used for the specific situations, payment channels solve the issues of transaction speed and cost beautifully.
The Bitcoin code would require updates to support the Lightning Network. Most notably, a solution to the malleability issue and the ability to lock transactions until some future point in time (BIP 65 ). To implement these a hard fork is not 100% essential. A soft fork can make it possible to implement the lightning network. Maybe, if the soft fork gives good results, a hard fork would eventually follow.