What is Lightning Network?

In short, Lightning Network is a layer 2 payment protocol built on Bitcoin Network to solve the problem of network congestion. The idea is to open a "green channel" outside the blockchain and conduct a large number of high-frequency and small transactions outside the blockchain.

In this way, both parties to the transaction can conduct multiple, high-frequency, two-way, point-to-point transactions on this "green channel", which can achieve instant confirmation of micro payment; Moreover, if there is no direct point-to-point payment channel for both parties, as long as there is a payment path consisting of multiple payment channels connecting both parties in the lightning network, the transaction can also be realized by using this payment path.

At present, the most popular cryptocurrency in the world is undoubtedly the oldest Bitcoin. However, Bitcoin still has technical challenges, especially its transaction capacity, which hinders the possibility of wider adoption of Bitcoin. As more people use cryptocurrency, it is still a question whether Bitcoin can handle millions of daily transactions

Lightning network, as one of the capacity expansion schemes, may be the answer to this question. As an innovative solution of Bitcoin's two-layer technology, Lightning Network can increase the number of transactions per second of cryptocurrency while maintaining low transfer costs. Lightning Network processes transactions independently by creating a second layer protocol on the Bitcoin blockchain, instead of recording every transaction on the original Bitcoin blockchain. In this way, a large number of transfer transactions can be unloaded from Bitcoin's native blockchain, thus releasing more transaction capacity.

Lightning network advantages

Immediate payment

Lightning online transactions do not need to wait for network confirmation, so transactions can be completed quickly in a few seconds.

low cost

As the transaction is settled off the chain, the service charge for flash online transfer is extremely low.

Small amount payment

The handling fee is calculated according to the proportion of payment amount, so there will be no unreasonable high handling fee for small transactions.


Lightning networks make it possible for Bitcoin networks to handle millions of transactions.

How Lightning Networks Work

Lightning network is built on the second layer of Bitcoin blockchain and is a decentralized system controlled by smart contracts. It provides online participants with instant and high flow micro payment services without hosting

The second layer of payment protocol enables participants to conduct transactions directly without broadcasting each transaction to the Bitcoin blockchain network by establishing a secure network between transaction participants. Lightning Network will complete the final settlement through Bitcoin blockchain only when the payment channel is closed.

Two way payment channel

To send and receive bitcoin through the lightning network, transaction participants need to establish a new lightning channel and send a bitcoin to the channel.

Within the upper limit of the total number of bitcoins sent when the channel is opened, trading participants can freely send any number of bitcoins.

Only when the channel is closed, all transactions will be settled and the user's actual Bitcoin balance will be updated. Transfer fees will also be incurred.

Global payment network

The payment function of the Lightning Channel is not limited to the transaction participants who open the channel. Even if there is no direct relationship between the sender and the receiver, the network will ensure that the funds are sent to the destination. Lightning Network will look for possible indirect paths to reach the expected destination, otherwise it will refund.

Blockchain playing the role of arbiter

Although all transactions are conducted offline, all participants can still ensure the enforceability of the chain. For example, a person can create legally effective contracts with many different counterparties, but it is not necessary to go to court for arbitration for the business within each contract. The intervention of arbitration is necessary, but only when the contract is not fulfilled, that is, Lightning Network will ultimately rely on the blockchain algorithm of Bitcoin.