How Sending Money Using Banks Works
Your bank holds your money. They also hold the money of lots of other people. When you send money to one of those people the bank takes it out of your account and gives it to the other person’s.
However, your bank doesn’t hold everyone’s money. To send money to someone who has an account at another bank, you need your bank to have an account with that bank. For you to send money to people at that other bank, your bank takes the money from you, and they tell the other bank to take the same amount out of their account with that bank and to give it to the person you’re sending it to.
For all this to work everyone needs to open accounts at banks. This makes banks very profitable and very powerful.
Bitcoin Is About Taking Back the Power and the Money.
In Bitcoin we remove institutions that hold power over us. We take back both the power and the money.
Bitcoin is beautiful because it makes a lot of things that were impossible before, possible. Things like economic stability, increasing purchasing power of savings, inclusivity and equal treatment for all. However, this requires trade-offs.
A traditional Bitcoin transaction is not like those in bank accounts. It is more like sending someone cash. However, the invention of the Lightning Network allows a single Bitcoin transaction to take on the properties of bank accounts we want.
Lighting Bestows a New Ability on Bitcoin — Connections
With Lightning, I can connect some of my bitcoin to you, and then I can send portions of it to you and you can send portions of that back to me like we could if we both held accounts in the same bank. Except, we don’t need the bank anymore. We’re the ones making the changes to the balances between us. We also don’t need to make any more traditional Bitcoin transactions to do this.
Plus, if I want to send money to someone who I have not connected to, but who you are connected to, I can. Just like the example with multiple banks, I give you some money through our connection and you give the same amount to that person through your connection to them. We can chain together transfers like this across dozens of connections so I can send money to someone many degrees of separation away from me. This happens instantly and automatically without people having to be present for any of it.
The Lightning Network allows participants to send bitcoin amounts in milli-seconds without paying the fees or waiting the time it takes for traditional Bitcoin transactions.
Getting On The Lightning Network
Like the banking system, people who want to use the Lightning Network need to get on it. The best way to get on Lightning is to run the software (a bitcoin node, lightning node and lightning graphical interface). This is not hard. A small, inexpensive piece of plug and play hardware that’s easy to set up is all you need. Once it’s up and running you can put some bitcoin into the Lightning Node and open up one or more connections. Then you can send bitcoin instantly and cheaply.
Lightning goes beyond giving us back control over our money. Since transactions are instant, nearly free, can be incredibly small and can be automated, Lightning Network opens up a world of incredible new possibilities. Ideas like streaming money, instant international remittances and more are all being rolled out. What we’ll end up seeing is going to be limited only by the imagination of Bitcoin’s brilliant, creative and growing community.
Lightning is not precisely like the banking system. For one, there’s no banks. There’s also much more privacy.
However, receiving money is not as easy as just opening a connection (aka a channel). To receive payments users either need to make space to receive it by spending the amount you’re trying to receive, or, they need someone to open a connection to them. If people are not connected through any route of connections they may need to open connections with each other.
These limitations will become much less of an issue as the network grows.
Want more? This entire series (plus a 26th bonus article) is available as a pdf or kindle ebook at https://swanbitcoin.com/whybitcoin.
This is #22 in the Why Bitcoin series. Next up, #23:
23. Why We Need Bitcoin
To be our magnificent selves we need to be free to be our magnificent selves. Free of masters. Free to choose.