Lightning Network

The Lightning Network is a payment layer built on top of Bitcoin. It enables instant, low-fee payments by routing them through a network of pre-funded payment channels, only settling on the base chain when channels open or close.

The mechanics, simplified:

1. Open a channel. Two parties create a 2-of-2 multisig on-chain Bitcoin output, funded by one or both. This is a normal on-chain transaction, pays a normal fee.
2. Transact off-chain. The two parties exchange signed "balance updates" - cryptographically valid claims about the current allocation of channel funds. These updates are not broadcast; they live only between the two participants.
3. Route through the network. Most channels aren't between you and your final recipient directly. The Lightning Network is a mesh of channels; payments hop through intermediate nodes using Hash Time-Locked Contracts (HTLCs) so that each hop is atomic - the whole payment succeeds, or none of it does.
4. Close the channel. Either party can close at any time by broadcasting the latest mutually-signed state on-chain. The funds get distributed according to that final state. Done.

What this buys you:

• Speed. Payments confirm in seconds, not minutes.
• Cost. Sub-cent fees are typical. You can actually use Bitcoin for micropayments.
• Privacy. Lightning payments are not broadcast on the public chain. Only channel opens and closes appear; the payments in between are between the participants and the routing nodes.
• Scalability. Each channel supports unlimited transactions between its two parties without bloating the base chain.

Limitations are real:

• Liquidity. A channel can only route as much as it has on the relevant side. Inbound liquidity is a real concept and a real problem for new nodes.
• Online requirement. Nodes must be online to send, receive, and (importantly) watch for fraud attempts from a channel counterparty.
• Operational complexity. Running your own Lightning node requires more attention than just holding Bitcoin. Many users prefer custodial Lightning wallets - which, as with custodial on-chain wallets, trade self-custody for convenience.

Lightning is how Bitcoin scales without changing the base layer. The base layer optimizes for settlement security across decades; Lightning optimizes for instant payments. The two are complementary by design.

A note on BOLT-12 offers. The legacy invoice format is BOLT-11 - single-use, point-in-time payment requests. BOLT-12 ("offers") is the modern successor: reusable, supports recurring payments, smaller, more private. It was officially merged into the Lightning specification in September 2024. Adoption is implementation-dependent as of 2026: Core Lightning, LDK, and eclair/Phoenix support it natively; LND does not yet (workable via the LNDK shim). Services like Strike, Lightspark, and CoinOS have shipped support; most everyday wallets still default to BOLT-11. Expect that to shift over the next few years.

See Lightning Channel for the building block, and Journey: Using Bitcoin for the practical user view.