Bitcoin revolutionized how the world pays, giving you the power to control your money without governments or banks. However, its transaction processing limits have long been said to be a shortcoming. The Bitcoin Lightning Network helps this issue by giving users the ability to make hundreds of thousands of cheap transactions each second. Here is the Lightning Network explained.

Lighting Network Explained

The Lightning Network is a secondary layer on the Bitcoin blockchain which allows users to create payment channels where transactions can occur away from the main blockchain, but still benefit from the blockchain’s security and decentralization. These are known as off-chain transactions. The second layer offers speed, cost savings and scalability for the entire Bitcoin network.

How Does the Lightning Network Work?

the lightning network works by creating off chain payment channels

The Lightning Network is built upon smart contracts that create off-chain payment channels between two parties. These are direct payment lines that occur on top or outside of the main blockchain. For example, you and your local cafe can create a payment channel in which you pay for your daily coffee and scone. Once the payment channel is open, you can make an unlimited number of payments. Transactions occur instantly and at a fraction of what it would cost on the main blockchain. Your payment channel has its own ledger where the transactions are recorded away from the main Bitcoin blockchain. Each party has the power to close or renew at their discretion.

Once the two parties decide to close the payment channel, all of the transactions that occurred inside are consolidated and then broadcasted to the main blockchain ledger. Consolidating the smaller transactions allow for larger transactions to be validated in a quick manner. Without payment channels, your small coffee and scone transactions would get in the way of the larger transactions, slowing down the Bitcoin network for everyone.

You could, of course, buy your coffee and scone through a normal Bitcoin transaction. However, each time you order you would have to pay the network fees which may cost more than the coffee itself. What’s the use in that? Instead with the Lightning Network, the only fees you pay are to open and close the payment channel.

What Makes the Lightning Network So Great?

The combination of payments made through the main Bitcoin blockchain and through Lightning Network result in an overall better payment experience that is fast, low cost and scalable.

It’s Fast

Exactly how fast is the Lightning Network? The Lightning Network is capable of handling 1,000,000 transactions per second, while the main Bitcoin blockchain can handle around 7 transactions per second.

It’s Cheap

Fees for Bitcoin transactions can be expensive (sometimes greater than whatever you're paying for). Lightning Network provides an economical way to make payments of any size, at regular intervals. This opens the door for making everyday micropayments in Bitcoin, like for coffee, pizza or anything else you can buy with Bitcoin.

It’s Scalable

The Lightning Network allows users to jump through payment channels. If Party A is connected to Party B, and Party B is connected to Party C, then Party A can transact with Party C without opening a new payment channel.

History of Lightning Network

  • 2013: Bitcoin developer Mike Hearn publishes Satoshi Nakamoto’s explanation of payment channels.
  • 2015: Joseph Poon and Thaddeus Dryja publish their paper “The Bitcoin Lightning Network” in which they describe an off-chain payment protocol built with payment channels.
  • 2016: Lightning Labs is founded. The company is dedicated to advancing the Lightning Network.
  • 2018: Lightning Labs releases beta Lightning implementation. Lightning Labs receives $2.5 million in seed funding, with notable investors including Square founder Jack Dorsey.
  • 2022: BitPay supports Lightning Network payments

How to Use the Lightning Network in BitPay

Ready to jump into the Lightning Network? BitPay makes it easy to send and receive Lightning payments.

How to Make Lightning Payments

Making a Lighting payment to a BitPay merchant is as easy as any other payment. Once an invoice is generated, you will have the opportunity to select your Lightning supported wallet. You can find a list of Lightning wallets BitPay supports in our Support section.

How to Accept Lightning Payments

Your customers will automatically have the ability to choose a Lightning Network payment. As a BitPay merchant, you will not have to make any changes or adjustments to start accepting Lightning payments.

FAQs About the Bitcoin Lightning Network

How fast is the Bitcoin Lightning Network? How Many transactions per seconds can the Bitcoin Lightning Network process?

The Bitcoin Lightning Network is capable of processing 1,000,000 transactions per second (TPS). By comparison, Bitcoin can process about 7 TPS, while Visa can process tens of thousands TPS.

How Do I Use the Lightning Network?

When paying a BitPay merchant, you will have the option to pay invoices via Lightning Network. Simply scan the invoice QR code, choose your wallet and select Lightning Network as your cryptocurrency. A Lightning enabled wallet is required to use the Lightning Network.

Which coins are supported by the Lightning Network?

BitPay’s support of Lightning Network only extends to Bitcoin transactions.