A Comprehensive Guide to Bitcoin’s Lightning Network

A Comprehensive Guide to Bitcoin’s Lightning Network

Introduction to Bitcoin’s Lightning Network

The Lightning Network is a second layer built on the Bitcoin network to enable peer-to-peer transactions. Other blockchains such as Litecoin have also incorporated it into their portfolio. It is important to note that the Lightning network is not part of the Bitcoin blockchain and it is often referred to as an off-chain or second layer solution.

The lightning network consists of independent nodes and infrastructure. Bitcoin investors must create special transactions on the network to process them through LN.

How Does It Work?

LN works by generating a smart contract between two independent Bitcoin traders. This smart contract works like a private ledger between investors. The investors on that ledger can add a number of transactions there. These records are visible to the concerned parties only.

At the same time, the participants are unable to cheat on account of verification methods. This type of mini-ledger is dubbed a channel. The smart contract is not closed until there is some remaining balance available for the investors using it. Investors have the option to post the details of their ledger on the main blockchain.

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Why Do Investors Use Lightning Network?

Bitcoin blockchain is a decentralized network that depends on nodes for network governance. Therefore, the through put on a blockchain is limited and lead to a smaller amount of transactions processed on the network.

The ability of a blockchain to process trades is calculated in transactions per second or TPS. A blockchain with lower TPS has scalability constraints. Scalability is the ability of a blockchain to expand its operations. LN is a type of scalability solution for the Bitcoin blockchain.

Bitcoin blockchain preserves its immutability or adhering to the fundamental governance mechanism. Bitcoin users can incorporate changes through BIPs but they are lengthy processes.

On the other hand, increasing scalability of Bitcoin network can require making major changes to the core infrastructure of blockchain. This also possesses the threat of hard forks and technical bugs.

Considering the elephantine scale of investment already staked in Bitcoin, such an attempt can lead to catastrophic outcomes.

Therefore, rather than taking the risk of allowing technical issues in the Bitcoin blockchain developers prefer to use alternative methods. LN is one of the solutions that bring more scalability to Bitcoin network without making any changes to its underlying structure.

LN is a off-chain network meaning that the on-chain transactions on Bitcoin continue to operate as usual for the end-user.

Advantages of Lightning Network

Some useful aspects of incorporating Lightning network are mentioned as under:


Block time on Bitcoin is 10 minutes. Each block has a defined storage space that cannot exceed. Bitcoin is accessible for investors hailing from all parts of the world.

Therefore, the network can suffer from network congestion from time to time. Miners are incentivized by block rewards therefor they prioritize transactions that have a higher transaction fee.

Investors can opt to process their transactions through Lightning network but they have to pay two fees. The first one is to open a new alternative transaction channel and the second one is to close it. However, investors can make thousands of transactions at each transaction that are free of cost when the channel is opened.

Once the channel is closed, the investors are obligated to post it on the blockchain. In this manner, investors are able to access low-cost, high-frequency transactions at faster processing speed. Meanwhile, block space is preserves for larger transactions on main net.


LN allows investors to process smaller amounts of Bitcoins that are measured in satoshis. Each Bitcoin consists of a hundred million satoshi units that are abbreviated to sats. Investors are often discouraged from making smaller transactions on main Bitcoin network on account of higher transaction costs.

Since transactions on LN are free of cost except for opening and closing, it means that investors on the platform can make micropayments on LN.


LN also brings more privacy and transaction autonomy for the investors. The users on one LN channel do not have to disclose the transaction record with the remainder of the community.


LN uses features such as multi-signature wallets, hash timelock contracts (HTLCs), and opening/closing channels to ensure verification and security. LN is incorporated by various blockchains such as Litecoin and exchanges as scalability solution for investors.  

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Cecil Felix
About Author

Cecil Felix

Cecil Felix, a vanguard in crypto journalism, provides incisive perspectives on the digital currency frontier. With a talent for distilling complex blockchain phenomena into digestible insights, Cecil's articles are a touchstone for enthusiasts and experts. His depth and clarity solidify his reputation as a leading crypto commentator

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