What Is Lightning Network? - Bitcoin Lightning Network

Pathik Bhattacharya
Pathik Bhattacharya

Updated on May 01, 2023 11:41 AM

Published on January 28, 2023 01:07 PM

The Lightning Network allows users to transmit and receive Bitcoin rapidly and cheaply by offloading transactions from the main network.

Bitcoin Lightning Network
Source: Unsplash

Until now, you may be aware of Bitcoin but do you know how Bitcoin lightning networks transact Bitcoin? Do you know how quick the Bitcoin lightning network is? Let’s discuss this.

The Bitcoin Lightning Network aims to make Bitcoin transactions as quick and inexpensive as possible. It's part of a newer class of crypto technology known as "layer 2" blockchains, which are similar to HOV lanes on motorways. The primary Bitcoin blockchain ("layer 1") can move faster by shifting some transaction "traffic" to the Lightning Network's "layer 2" blockchain.

In this article, we will follow what is Lightning network, How it works, and its use cases.

What is Bitcoin Lightning Network?

Bitcoin was designed as a peer-to-peer electronic currency system. This meant that consumers could transfer value without the need for a middleman. At the time of its birth, the creator(s) of Bitcoin focused primarily on these two elements, ignoring scalability and transaction throughputs. 

While this wasn't too much of a problem at first, as the years passed, it became a problem. The blockchain trilemma was a situation in which blockchain architects had to strike the appropriate balance between decentralisation, scalability, and security.

To solve this issue, a Bitcoin lightning network was built over the Bitcoin blockchain. Let's define what is Bitcoin lightning network means.

What is Lightning Network? What does it Mean?

A Lightning Network channel is a two-party transaction technique that allows parties to send and receive payments from one another. Layer two improves blockchain application scalability by managing transactions outside the blockchain mainnet (layer one), while still benefiting from the mainnet's robust decentralized security paradigm.

Scalability is a fundamental hurdle to the widespread adoption of cryptocurrencies. A blockchain network, when appropriately scaled, can process millions to billions of transactions per second (TPS). 

In this context, the Lightning Network charges low fees by transacting and settling off-chain, enabling new use cases such as instant micropayments, which can solve the traditional "can you buy coffee with crypto" conundrum by speeding up processing times and lowering the expenses (energy costs) associated with Bitcoin's blockchain.

While the purpose is there, the Lightning Network struggles to solve the problem and even introduces new issues such as reduced routing prices and malicious assaults.

How Lightning Network Works?

The Lightning Network is created off-chain allowing users to execute Bitcoin transfers in order to decrease on-chain network congestion.

To begin, a channel is established between two parties via which funds can be submitted. They can then utilize this channel to move BTC between themselves immediately and with near-zero fees, without having to broadcast every transaction to the Bitcoin blockchain's base layer. At any time, either party can settle on the Bitcoin blockchain and close the channel.

When the channel is closed and resolved on the base layer blockchain, the assets are distributed to each party in accordance with the transfer history of the channel, which is summarized as a single transaction on the Bitcoin blockchain. 

The only Lightning-related transactions broadcast to the Bitcoin network are channel opening and shutting. This helps to free up block space, which results in lower network fees and more economic activity per block.

The two parties' direct payment channels may also become a part of the wider Lightning Network. If two parties do not have a direct conduit, payments can be transferred via interconnecting pathways. The network's lightning nodes look for the best route to complete the transaction.

Lightning Network’s use cases

  • Twitter users can send and receive Bitcoin "tips" using the Lightning Network. Many of Twitter's 360 million monthly active users may transfer Bitcoin payments to other Twitter accounts immediately and for free using Strike, a Lightning Network-compatible payments tool. (In fact, Twitter isn't the first creator-driven social platform to use the Lightning Network; Substack has accepted BTC payments since late August.)

  • El Salvador was the first country to make Bitcoin legal tender, in part to save Salvadorans $400 million in money transfer costs each year. Chivo, the government-created wallet, is Lightning-compatible and intended to facilitate smooth cross-border transfers. Chivo was consistently one of the most downloaded apps in El Salvador as of October.

  • Paxful, a peer-to-peer Bitcoin exchange that processes millions of dollars in Bitcoin transactions in emerging economies and claims to have 1.5 million members in Africa alone, has also recently announced that it will support Lightning payments. This integration could enable millions of consumers to make quick and inexpensive Bitcoin payments.

What Issues Does the Lightning Network Try To Address?

Bitcoin lightning network solves many transaction related as well as fees related issues as in the beginning, Bitcoin wasn’t structured to handle the load of vast transactions.

Sluggishness in confirming transactions: Because there are so many people transacting, it has become expensive and time-consuming, and mining difficulty is increasing with time. The increased transaction volume necessitated an improvement in transaction confirmation.

High energy prices: The amount of energy required to compute this information is tremendous, making Bitcoin blockchain maintenance prohibitively expensive.

Payment Confirmation: Smart contracts and multi-signature are at the heart of the Lightning Network, ensuring that payments transmitted via the channels reach their intended destination.

Advantages of Bitcoin Lightning Network

Advantages of Bitcoin Lightning Network


Fast Transactions

Transactions on the Lightning Network are near-instant, allowing for speedy peer-to-peer payments without the need for confirmation on the blockchain.

Low Fees

Fees on the Lightning Network are significantly lower than those on the Bitcoin blockchain. This makes microtransactions feasible and affordable.


The Lightning Network increases the transaction capacity of the Bitcoin network, allowing for a higher volume of transactions to be processed simultaneously.


The Lightning Network is decentralized, meaning that it does not rely on a central authority or intermediary. This reduces the risk of censorship and promotes financial freedom.


Lightning Network transactions are private, making it difficult for third parties to track and monitor user activity.


The Lightning Network can be used with any Bitcoin-compatible cryptocurrency, enabling seamless interoperability between different digital assets.

Smart Contracts

The Lightning Network supports smart contract functionality, allowing for more complex and sophisticated payment arrangements to be executed automatically.

Lightning Network History

The Lightning Network was first envisioned in a whitepaper released in 2015 by Joseph Poon and Tadge Dryja.

Its testnet was launched in May 2016, and by January 2017, Lightning's first implementation, and, had reached alpha status. Alex Bosworth utilized Lightning to pay his phone bill in December 2017, making it the first real-world transaction over a Lightning Network channel.

As the alpha development stage came to a close, Lazlo Hanyezc, the first individual to utilize Bitcoin in the real world by buying 10,000 BTC for two pizzas in 2013, used Lightning to buy two pizzas once more.

Several teams, notably Blockstream's c-lightning, Lightning Labs' lnd, and Acinq's Eclair solutions have since launched Lightning nodes on mainnet.

Potential Drawbacks and Risks of the Lightning Network

Despite the fact that it adds a critical layer to the Bitcoin Network's capabilities across the blockchain trilemma, the Lightning Network is not without drawbacks. The following are the most important problems.

  • The cost and difficulty of joining the Lightning Network

  • Transactional counterparty risk

  • There is a lack of functional scalability

The below table consists of potential risks and drawbacks of Bitcoin lightning network.

Risks and Drawbacks of Bitcoin Lightning Network


Cumbersome Setup Process

The process of setting up payment channels on the Lightning Network is complicated and requires users to move funds onto the network and lock them into a channel, which can be expensive.

Counterparty Risk

Once funds are locked into a payment channel, they are at risk of being lost if the counterparty chooses to close the channel or if there are technical issues. While watchtowers and Lightning service providers can mitigate some of these risks, they add a vector of centralization to the network.

Limitations on Functionality

Due to the nature of payment channels being just between two parties, it is not seamless for businesses to transact with multiple counterparties. Businesses would need to open channels for each counterparty and manage them individually, exposing them to counterparty risk on each channel.

Lack of Foolproof Solution

There is currently no foolproof solution to the counterparty risk that users are exposed to on the Lightning Network once the channel is open.

Limited Adoption

The Lightning Network is still a relatively new technology and has limited adoption compared to traditional payment methods, which may make it less accessible for some users.


Bitcoin's Lightning Network is quickly expanding. As a result, more individuals, businesses, and countries are adopting this quick, low-cost, and secure method of payment.

While the network has significant drawbacks, there is little doubt that it has assisted in the resolution of some of the challenges encountered on the mainnet. As more people grasp the benefits of the Lightning Network, network adoption should continue to rise.

Lightning Network FAQs

What is the Lightning Network in Bitcoin?

The Lightning Network is a second layer for Bitcoin that employs micropayment channels to increase the capacity of the blockchain to perform transactions more effectively. This layer is made up of several payment routes between parties or Bitcoin users.

Is Bitcoin Lightning free?

Users will also be able to send Bitcoin for free to any merchant that accepts Lightning Network payments. While this isn't yet a common practice, a few merchants have begun to accept Lightning payments, allowing customers to do things like order pizza or purchase gift cards via the Lightning Network.

Can I send Bitcoin to Lightning's wallet?

The sender does not require a Cash App account to pay your request with Bitcoin via the Lightning Network, but they will need a Bitcoin wallet with Lightning-enabled. Customers in New York cannot use this function.

Can I Invest in the Lightning Network?

While you cannot directly invest in the Lightning Network, you may invest in Lightning Labs, the business that runs it.

Who Runs the Lightning Network?

The Lightning Network was created by Lightning Labs, which is managed by Elizabeth Stark. The network itself is hosted on the internet and is comprised of thousands of nodes distributed all over the world.

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