Scalability, is the capability of a system, network, or process to handle a growing amount of work, or its potential to be enlarged and to accommodate that growth. Scalability has always been a problem for the blockchain. The 1 megabyte (mb) Bitcoin blocks demand high fees to be broadcasted.
Bitcoin Cash hailed by Roger Ver as the great alternative to Bitcoin came up with 8 mb blocks, but in countries with worst internet connections that makes the broadcast of the ledger slower and more expensive for miners.
Core came up with a second solution in which more information can fit in 1 mb. Their system is called SegWit, short for segregated witness. It basically splits the transaction into two segments, removing the unlocking signature (“witness” data) from the original portion and appending it as a separate structure at the end.
Lightning is a network that offers a new solution. The basic idea of lighting is that normal everyday transactions don’t need to be stored on the blockchain because they are so small the fees just don’t justify it. Lightning creates instead a payment channel. Both parties of the transaction deposit through that payment channel a certain amount on a safe called multi-signature address. The amount deposited on the multi-signature address is not on the main blockchain and can only be transferred when the two parties agree. Miners just verify the balance sheets of the parties. That is why lightning is referred to as an off chain or layer 2 solution.
Lightning’s multi-signature system may sound centralized like a bank, but is the best solution found yet for the scalability problem of the blockchain. Lightning is cheaper and faster than any other solution.