Lightning Network
A second layer on top of Bitcoin for fast, low-cost payments. Amounts move off the blockchain via payment channels; only opening and closing a channel ends up in a block as a normal transaction.
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On the learning path: Stage 1 · Step 3 – How does Bitcoin work?
The Lightning Network is a second layer (layer 2) on top of Bitcoin for small, fast payments: a coffee, a tip, a donation – in seconds and often for a fee of just a few sats. Joseph Poon and Thaddeus Dryja described it in a whitepaper (version of 14 January 2016). Today, open specifications known as BOLTs define how Lightning software from different developers works together.[1],[2]
How it works
- Payment channels: Two parties lock bitcoin in a shared address and then move balances by signing new channel states. Only the opening and closing go on the blockchain. More under payment channelGlossaryPayment channelA shared bitcoin pot between two parties, secured by a 2-of-2 multisig address. Within the channel, both shift balances by signing a new channel state, without writing every payment to the blockchain.In the glossary →.
- Routing: You don’t need a separate channel to every recipient. Payments travel across several channels, secured by a shared secret and timelocksGlossaryTimelockA condition under which bitcoin may only be spent from a certain block height or point in time, or after a waiting period. Timelocks are a building block for Lightning and for inheritance and emergency setups.On the learning path: Stage 6 · Step 4 – Inheritance & emergency plan →In the glossary →. Either the payment arrives in full, or nobody loses anything.[1]
- Invoices: You pay via an invoice, as text or a QR code. On the Bitcoin main network, it starts with
lnbc.[2]
Limits
- Online keys: Lightning wallets sign on an online device. That makes them hot walletsGlossaryHot walletA wallet whose private keys are stored on a device connected to the internet – such as a smartphone app. Handy for payments and small amounts, but more exposed to online attacks than cold storage.On the learning path: Stage 5 · Step 1 – Understanding custody →In the glossary → – not for large savings.
- Liquidity: You can only send what sits on your side of your channels, and only receive what sits on the other side.
- Custodial apps: Some Lightning apps hold the keys for you. That’s convenient, but you’re trusting the provider.
The Lightning Network shows what this looks like in everyday use and how big the network is.
Related terms
These terms are closely connected.
- This termLightning Network
- Payment channelA shared bitcoin pot between two parties, secured by a 2-of-2 multisig address. Within the channel, both shift balances by signing a new channel state, without writing every payment to the blockchain.
- TimelockA condition under which bitcoin may only be spent from a certain block height or point in time, or after a waiting period. Timelocks are a building block for Lightning and for inheritance and emergency setups.
- SegWit (Segregated Witness)A 2017 soft fork that treats signature data (the ‘witness’) separately. It fixed transaction malleability, increased block capacity and makes payments with modern addresses (bc1q…) cheaper.
- Hot walletA wallet whose private keys are stored on a device connected to the internet – such as a smartphone app. Handy for payments and small amounts, but more exposed to online attacks than cold storage.
- Satoshi (sats)The smallest unit of Bitcoin: 1 satoshi (‘sat’ for short) equals 0.00000001 BTC, so one bitcoin consists of 100 million sats. The unit is named after Bitcoin’s creator, Satoshi Nakamoto.
Explained in depth
These articles go into more detail:
- Deep dive · Stage 1Lightning NetworkHow payment channels and routing work, what Lightning is good for, where its limits lie and what to look out for with Lightning wallets.
- Deep dive · Stage 4Earning BitcoinAccepting bitcoin as salary, fees, sale proceeds or Lightning tips: what employment law allows, what mining at home yields and what the tax office wants to know.
- Stage 1 · Step 3How does Bitcoin work?Blockchain, transactions, nodes, miners and consensus: how Bitcoin’s building blocks fit together – with a payment’s journey, step by step.
More from „Technology“
Sources2 sources · 2 publishers
The superscript numbers in the text refer to these sources.
- The Bitcoin Lightning Network: Scalable Off-Chain Instant Payments (Draft 0.5.9.2) – Joseph Poon, Thaddeus Dryja, 14.01.2016 (accessed 28/09/2026)
- BOLT: Basis of Lightning Technology (Lightning Network Specifications) – Lightning developer community (accessed 28/09/2026)
This entry is for education only and is not investment, tax or legal advice.