What is a lightning network?
A lightning network is a kind of peer-to-peer application built on a blockchain. Its aim is to simplify transactions that must be performed within the blockchain. The blockchain is a kind of booking system, which stores all transactions in a chronological order.
These transactions are stored in blocks and strung together. It should also be noted that a block can only capture a certain number of transactions and a new one must be generated after the completion of a block.
In this case, each block contains the checksum of the previous block, so that a chronology can be guaranteed. This functionality also applies in the context of a lightning network, but all payments can be made through a variety of micro-payment channels.
How does a lightning network work?
A lightning network makes it possible to perform transactions that are not verified directly in the blockchain. As a result, not all transactions are communicated to the users and to the blockchain but can be performed in the dark.
However, the transactions are not completely opaque. In fact, the net transactions are written to the blockchain and can be traced in retrospect by other users. However, only the amount of the transaction is played back, and all other data is encrypted.
Nevertheless, in order to guarantee security, high levels of functionality are placed on smart contracts. In addition to ensuring the actual function, the smart contracts create a level of trust needed by users to make further investments in the network.
Furthermore, smart contracts help to meet defined deadlines and time windows.