The Lightning Network

Lightning’s core innovation is its use of payment channels – you can think of them as digital bar tabs of sorts. They allow two trading parties to freely transact in a peer-to-peer manner, using bitcoin but without needing to use bitcoin’s hefty finality process for anything other than initiating and ending a series of trades. So, a bit like ordering drinks during the evening without settling the bill until you leave.

Payment channels enable one opening and one closing settlement transaction to aggregate a large total number of trades. This increases the economic capacity of the bitcoin blockchain transactions and splits its on-chain fees across a potentially unlimited number of individual payments.

Lightning expands beyond its core concept of bidirectional payment channels to networked multidirectional channels, where payments can be routed in hops across multiple channels, in a similar manner to how packets of information are routed across the internet. Having been founded in 2019, Lightning is relatively new and, for the most part, still requires a degree of technical knowledge to use.