What is the Lightning Network?

Bitcoin Lightning Network is a second layer Blockchain protocol that enables instant payments and near-zero fees. This post explains how it works.



10/6/20223 min read

Lightning Network
Lightning Network

What is the Lightning Network?

There are several reasons why bitcoin payments are becoming faster and cheaper, and this guide will explain why.


As a function of the Lightning Network and compared to a highway HOV lane on a freeway, users can use the Lightning Network to send and receive Bitcoin quickly and cheaply through the move of transactions off of the main blockchain.

Bitcoin transactions can be made faster and more cost-effective on the Lightning Network. Basically, it is part of the "layer 2" class of crypto technologies, which can be compared to highway high-occupancy vehicles. Lightning Network's "layer 2" blockchain can speed up the core Bitcoin blockchain ("layer 1") by offloading some transaction "traffic".

Lightning Network's use cases
  • The Lightning Network is a method from which users on Twitter can send and receive bitcoin "tips" through their accounts. Bitcoin payments can be sent instantly and for free to other Twitter accounts with a Lightning Network-compatible app called Strike. Substack has offered BTC payments since late August, so Twitter isn't the first platform to incorporate Lightning Network.

  • Salvadorans were able to save $400 million a year in money transfer fees by making Bitcoin legal tender - in part by eliminating money transfer fees. Cross-border payments are seamless with Chivo, the government-created wallet. A number of El Salvadorians have downloaded Chivo, which was one of the most downloaded apps as of October.

  • Lightning payments are now available on the peer-to-peer Bitcoin exchange Paxful. Paxful processes millions of dollars' worth of Bitcoin transactions in emerging markets and says it has 1.5 million users alone in Africa. Millions of users could benefit from this integration.

Why is something like the Lightning Network necessary?

The pseudonymous creator of Bitcoin first described Bitcoin using the phrase "peer-to-peer electronic cash" in a 2008 whitepaper - suggesting that it might one day be a popular way for people to shop online.

The narrative shifted as Bitcoin's value increased. Rather than thinking of Bitcoin as mere digital gold, we now tend to think of it as a way to store wealth that's inflation-resistant.

How could that have happened? The Bitcoin network is designed in such a way that it can withstand large spikes in demand. By using Bitcoin, you are able to send or receive value securely without involving a third party such as a credit card company or payment processor.

Using a decentralized network of computers, Bitcoin's digital ledger is maintained by a consensus among those computers. A time-consuming process, mining, was Nakamoto's solution.

Invented partly to help Bitcoin function more like Nakamoto's dream of digital cash, the Lightning Network makes Bitcoin more like digital cash. With fees that are typically fractions of a cent, it processes transactions "off-chain" much faster and more cheaply than Bitcoin's core blockchain. The main blockchain requires more energy for transactions than Lightning.

The Lightning Network (layer 2) can theoretically handle millions of transactions a second, while the main Bitcoin blockchain (layer 1) can handle less than 10 transactions per second.

How does the Lightning Network work?

A Lightning Network is a distributed digital currency that enables pair-to-pair payments to be made using smart contracts outside of the blockchain. Almost instantly, you can transfer money between these channels.

That way, all users don't have to create pairs. A user with a channel with User B and another user with a channel with User B but not with User A can still freely transfer funds between themselves if all parties in the network have channels with each other. User payment processes for Lightning addresses are similar to Bitcoin addresses.

The core blockchain allows users to settle their final balances at any time, thereby closing their payment channels.

It is due to the fact that the core blockchain records only the opening and closing of payment channels, that the cryptocurrency network as a whole is moving at a faster rate. Besides that, Lightning Network transactions are more private than main chain transactions (since layer 1 transactions are all public).

How can you get started with the Lightning Network?

In order to use the Lightning Network for transactions, you will need to send some Bitcoin (from your Coinbase account for example) to a Lightning-compatible wallet if you want to use the Lightning Network. Countless options exist. "Custodial" and "non-custodial" wallets are popular options. I will explain the difference in the following manner:

  • There are a variety of wallets that are available for custody, such as Strike Wallet, Blue Wallet and Satoshi Wallet. For beginners, these tend to be great options, as they simplify the process of sending and receiving cryptographic messages via the use of a private key management system. You will be able to reset your password, for example, if you lose it.

  • A non-custodial wallet might be Muun, Breez, Phoenix, or Zap. Traders prefer user-controlled wallets because they are secure and nobody else has access to their keys. There is a possibility of losing access to your funds if you lose your wallet, damage it, or forget your password. Regardless of which wallet you choose, it is vital that you learn how to back up and restore it.