The Lightning Network addresses Bitcoin’s scalability limits by letting parties open payment channels funded by on-chain transactions. Subsequent transfers occur off-chain, with each channel participant updating balances. When the channel closes—voluntarily or due to disputes—the final state is settled on the main blockchain. This approach allows near-instant payments and minimal fees, making microtransactions and everyday commerce feasible. LN uses hashed timelock contracts (HTLCs) to chain channels together, routing payments across multiple hops without requiring trust in intermediate nodes.