Bitcoin's "Layer 2" for instant, cheap payments
Bitcoin's base layer (Layer 1) processes ~7 transactions per second globally. That's great for security, but not for buying coffee. Waiting 10+ minutes and paying $1+ in fees doesn't work for small payments.
Instead of paying for each drink separately (on-chain transaction), you open a tab. Throughout the night, you and the bartender track what you owe. At the end, you settle the tab with one payment. Lightning channels work the same way — you only touch the blockchain when opening or closing the channel.
A Lightning channel is like a shared account between two parties. Both put Bitcoin in, and they can instantly send it back and forth without touching the blockchain.
Each payment is instant and free. Only opening/closing the channel requires an on-chain transaction.
You don't need a direct channel with everyone. Lightning finds a path through other people's channels.
| Aspect | On-Chain | Lightning |
|---|---|---|
| Speed | 10-60 minutes | Instant (~1 second) |
| Cost | $0.10 - $50+ | < $0.01 typically |
| Minimum amount | ~$0.50 (dust limit + fees) | 1 satoshi (~$0.0004) |
| Privacy | Public forever | Only parties involved know |
| Requires | Just a wallet | Channel or custodial wallet |
| Best for | Large amounts, cold storage | Small, frequent payments |
Someone else manages the channels. Simple but requires trust.
You control the keys. More setup, but trustless.
Yes. Lightning channels are secured by real Bitcoin locked on-chain. You can always close your channel and get your Bitcoin back on Layer 1.
You can still close the channel unilaterally after a timelock period. The latest agreed balance is enforced by the blockchain.
The technology can handle the transactions, but onboarding billions of users with their own channels requires solutions like channel factories, which are still being developed.