In this post and infographic, we want to explain one of the biggest financial breakthroughs in a century to you, built on top of Bitcoin. This innovation will eventually enable new, consumption-based business models, microtransactions and even the livestreaming of money. The implications of this are hard to overstate.
Why haven’t you heard about this before?
You’ve probably heard some things about the cryptocurrency Bitcoin, the global network that allows people to directly transfer value without middlemen.
The media has been talking a lot about the explosive price action over the past year, but they’re not doing a great job at educating people how all of it works and what amazing innovations are being created. Admittedly, explaining Bitcoin isn’t an easy job. Even the inventor struggled with it!
Writing a description for this thing for general audiences is bloody hard. There’s nothing to relate it to.
– Satoshi Nakamoto, 05/07/2010
Bitcoin is complex to understand, because it combines so many different fields. It’s like trying to understand how the Internet technically works. Most people don’t, but they still trust it with their sensitive information.
When it comes to money, we’re much more reluctant with our trust. Even though most people don’t have a clue how the existing financial system works either, we still want to understand this new thing. So let us explain!
The simple idea behind Bitcoin
In essence, Bitcoin allows you to be the absolute owner of your money, instead of trusting someone else to take care of it at a cost. Not everyone is interested in that or happy about it, which is fine. It can help a lot of people that don’t have access to financial services today.
Bitcoin was not invented to replace your bank, but to provide an alternative financial system that allows you to transfer value anytime, anywhere in the world. It consists of several components that make this possible.
One of them is the widely praised Blockchain technology. This is a database that permanently records ownership of the money and value on the network throughout time. Contrary to popular belief, it is an unattractive tool for criminals, because they don’t want to leave permanent evidence of their crimes.
Bitcoin’s popularity problem
Over the past years, this system has become more popular than the technology can handle. There are huge amounts of people that want to send near instant and near free transactions anywhere in the world, because they can’t do this with their banks.
To process so many transactions, you would eventually need a centralised system with a small amount of powerful computers, with the best Internet speeds in the world. Unfortunately, most of the world does not have that luxury, but we also don’t want a small amount of people to be in control of Bitcoin.
As a result, only a few hundred thousand transactions can be processed per day, and when there is a lot of demand, it can become slower or more expensive to do so.
So a bunch of developers have been spending a lot of time to create promising solutions for this scalability problem.
We created an infographic to explain their innovation to you in simple terms.
You can find it at the bottom of the post.
The Lightning Network
Lightning is a system that works on top of the Bitcoin blockchain, so it uses actual bitcoins. It is like a checking account to your savings account, which allows you to instantly transfer money at almost no cost.
On the blockchain, everyone who helps to secure the network needs to store all of the transactions, but on the Lightning Network this is not needed. This way bitcoin can be used cheaply, by far more people around the world.
The Lightning Network is already live today, but is still in its very early stages. On this site you can see all the connections people have already set up (About 1000 at the time of writing this).
This is what the early Internet looked like as well, hopefully the Lightning Network will become a global success as well.
How can you get started with the Lightning Network?
Later this year, more and more applications will allow you to use the Lightning Network yourself, keep an eye out for this! For now it is being tested by experts.
If you want to learn more about the Lightning Network, we highly recommend you to check out this megathread on Reddit.
If you’re interested in more simple explanations about Bitcoin, Cryptocurrencies and Blockchains, you can follow @SDWouters and @CnuddeLouis on Twitter, or hire them as speakers for your event or organisation. We can bring you an accessible story, tailored to the interests of the audience.
We also give workshops to work out the possibilities for your organisation to use blockchains and/or cryptocurrencies, and to set up new types of business models and revenue streams using innovations such as the Lightning Network. Contact us for more information.