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Lightning Network

The Lightning Network is an additional payment network built on top of Bitcoin. It often makes Bitcoin payments faster and cheaper.

Last updated • 2 min read
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What is the Lightning Network?

The Lightning Network is a Layer 2 solution. That means it works on top of the Bitcoin blockchain without recording every payment directly on the blockchain.

The network uses payment channels, which are connections between two parties. First, they set aside Bitcoin in a channel. Then they can make multiple payments without recording each payment separately on the blockchain.

When the channel closes, only the final distribution of Bitcoin is recorded on the blockchain. This reduces the load on the Bitcoin blockchain. Some Lightning wallets handle the technical steps, such as managing channels, for the user.

An example of the Lightning Network

Suppose you and a store both have a Lightning wallet. You pay a small amount by scanning the store’s QR code.

The payment goes through a payment channel and can arrive almost instantly. It doesn’t have to wait to be processed as a separate transaction on the Bitcoin blockchain. That’s why Lightning is suitable for small payments.

Why is the Lightning Network important in crypto?

The Lightning Network aims to make Bitcoin more useful as a means of payment, for example at online stores, cafes, and for international payments. You might see it mentioned in news about wallets, businesses that accept Bitcoin payments, or new ways to make small payments.

Fast, low-cost Lightning payments don’t mean that every Bitcoin transaction on the blockchain itself becomes faster or cheaper. Only payments made through the Lightning Network work this way.

There are also limitations. A payment requires enough Bitcoin to be available in the channels being used. The system can still be complicated for beginners and isn’t always ideal for large amounts.

Disclaimer: This content is for informational purposes only and does not constitute financial, investment, legal, or tax advice. The information provided may be incomplete, inaccurate, or outdated and should not be relied upon as such. Nothing on this website should be considered a recommendation to buy, sell, or hold any cryptocurrency. Investing in crypto-assets involves risk of loss.