Crypto glossary
Inbound liquidity (Lightning)
Inbound liquidity is the capacity on the other side of your Lightning channels that lets you receive payments; without it, you can send but not receive.
A Lightning channel's balance is split between its two parties. If you open a channel by depositing 0.01 BTC, all of it sits on your side: you can send up to that amount, but nobody can pay you through that channel because your partner has nothing to push toward you. The amount on the remote side is your inbound liquidity, and it caps how much you can receive.
This is one of the least intuitive parts of Lightning for newcomers and merchants. Ways to get inbound capacity include spending, so that funds move to the other side, asking a node to open a channel to you, buying a channel from a Lightning service provider, or swapping Lightning funds out to on-chain bitcoin with a submarine swap, which empties your side while keeping your money.
Inbound liquidity costs money because someone else's bitcoin is locked in your channel. Many mobile wallets now hide the issue by opening channels on demand and charging a fee for it. Merchants who receive more than they spend need to manage liquidity continuously, or payments fail.
Example
A new shop opens a Lightning channel with 0.02 BTC and is surprised that its first customer's payment fails; it buys a channel with 0.05 BTC of inbound liquidity from a provider and payments start arriving.