Crypto glossary
Lightning Network
The Lightning Network is a layer 2 payment network on Bitcoin that enables near-instant, low-cost transfers through payment channels opened off-chain.
Two users open a payment channel by locking bitcoin in a 2-of-2 multisig transaction on the Bitcoin blockchain. They can then send each other any number of payments off-chain by updating the channel's balance, and only the opening and closing transactions are recorded on the main chain.
Channels link up into a network, so a payment can be routed through several nodes to reach someone you have no direct channel with. Hash time-locked contracts (HTLCs) ensure that intermediaries cannot steal funds in transit. Payments are denominated in satoshis, and even fractions of a satoshi can be tracked inside channels.
Proposed in a 2016 white paper by Joseph Poon and Thaddeus Dryja and launched on mainnet in 2018, the network is used by exchanges and payment apps. Its limits include managing channel liquidity, the need for nodes to stay online and routing failures for large payments.
Example
Paying 5,000 satoshis for a coffee over Lightning settles in seconds and usually costs a fraction of a cent, instead of waiting for a block confirmation on-chain.
Related terms
Latest articles on Lightning Network
- Tether Wallet Adds Lightning Network Support in Version 1.4
- Bitcoin Lightning Network Blasts Past $1B Monthly Despite Price Turmoil
- Bitcoin Price Outlook: Lightning Network Capacity Surges as OG Investors Sell Into Support
- Stablecoin Giant Tether Backs Lightning Network With $8M Investment
- Cash App Brings Dollar Payments to Lightning Network, Expanding Crypto Utility
