What Is the Lightning Network?
The Lightning Network is a second layer on Bitcoin for small, fast payments. Two parties lock bitcoin into a payment channel, update balances off-chain as they pay, and only settle to the main chain when they open or close. Hops through other people's channels let you pay someone you do not have a direct channel with. Fees are usually cents or less. Settlement still depends on Bitcoin's finality when you close.
How It Actually Works
- A channel is a 2-of-2 multisig plus a stack of penalty transactions that make cheating expensive. SegWit made that design safe.
- Liquidity is directional. If your channel is empty on your side, you cannot send until someone pays you or you rebalance. This is why Lightning feels magical until it does not.
- You can run your own node, or use a custodial Lightning wallet that is really an IOU with a lightning costume. Those are convenient and they reintroduce exchange risk.
Risks and Common Mistakes
- Custodial Lightning apps are not self-custody. If the app dies, the sats in their channels are a support ticket.
- Force-closes and offline risk. If you go offline for a long time while running a node, a counterparty can try to settle an old state. Watchtowers exist for this. It is an ops job, not a savings account.
- Routing failures on larger payments. Lightning is built for coffee, not for moving the house down payment, unless you know what you are doing.
When It Matters
Spending bitcoin without waiting ten minutes and paying a main-chain fee, and judging any "instant Bitcoin" app. Ask whether you hold the channel keys. The Security page still wins for savings.
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