Chainalysis announced last Friday, December 10, through its Twitter account, that it now supports Bitcoin, Zcash and the Lightning Network.
“Today, Chainalysis announced product support for the Lightning Network, a Layer 2 protocol built on the Bitcoin blockchain that enables faster and cheaper transactions. With Lightning, small, recurring transactions that would not be cheap to make on the blockchain due to transaction fees become feasible, enabling new business use cases for Bitcoin. Next, we will tell you more about the Lightning Network, its growing popularity and how Chainalysis will allow our clients to process Lightning transactions with the same level of security and compliance as blockchain transactions”, he said through an article published on his website.
What is the Lightning Network?
The company explained that the Lightning Network is a payment network built on top of the Bitcoin blockchain that allows users to transact off-chain. Users can do this by establishing their own channel on the Lightning network, which functions as a payment gateway between them and another user. A user begins by “funding” the channel with an initial amount of Bitcoin; that transaction happens on the chain.
“After that, they can send a virtually unlimited number of small transactions to the other user on the channel, funded by the initial amount deposited on the chain. Those small transactions settle instantly on the Lightning Network. Later, when the channel is closed, either when the initial funds are exhausted or when one or both users decide to close it, all those small transactions are integrated into the Bitcoin blockchain in a single transaction, saving money for both users in rates”, he added.
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According to the company, while channels are limited to two participants, the Lightning Network also allows users to send funds to users on other channels if they share channel partners. That means that with just a few “hub” channels comprising users with many connections, a Lightning Network user can make a payment to just about anyone else.
Additionally, he highlighted that the easiest use case to imagine for Lightning Network transactions is that of a retail store – CoinTelegraph cites the hypothetical example of a coffee shop in its helpful explanation. Using Bitcoin for small, recurring transactions, such as buying coffee multiple times a week, would not be feasible if all transactions were settled on-chain, as the fees and settlement times would be too high. The Lightning Network solves that problem and introduces greater scalability into the Bitcoin ecosystem, allowing for more commerce-based use cases.
How popular is the Lightning Network?
The company indicated that the amount of Bitcoin blocked on the Lightning Network, that is, the amount that is used to finance Lightning channels, has grown significantly throughout 2021.
“As of December 1, 2021, just under 3,600 BTC worth more than $205 million are locked on Lightning Network public channels, up from 468 BTC worth approximately $4.8 million on January 1, 2021. The number of open beam channels has also increased substantially over time. On December 1, 2021, there were more than 90,000 public Lightning channels open, up from 38,000 in January”, he said.
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