Lightning Network

The Bitcoin Lightning Network is a layer-2 solution built on top of the Bitcoin blockchain that enables faster and cheaper transactions by creating off-chain payment channels between users. Basically, instead of broadcasting a Bitcoin transaction to the public, you exchange pre-signed Bitcoin transactions with your peers that can be published to the blockchain at any time by either party. As it eliminates the requirement to record every single transaction in the blockchain, the Lightning Network is a way to scale Bitcoin.

The basic idea is simple, but understanding how it works in detail is very complex. This documentation won’t explain the Lightning Network in depth, but one essential fact deserves attention:

The Lightning Network is built on actual Bitcoin — no shady shitcoin involved!

Here’s a brief overview of its pros and cons:

Pros:

• Fast

• Cheap (for small transactions, costs scale with transaction value)

• Better Privacy (the transactions are not visible to the public, only the final channel balance is)

• Helps scaling bitcoin while preserving its decentralization

Cons:

• Backups get way more complex

• Liquidity management is very complex

• Your node needs to be online to receive a lightning payment

As a rule of thumb, the Lightning Network is ideal for small, everyday payments, while the Bitcoin base layer is better suited for larger transactions.