What is the Lightning Network and how does it work?

On its most basic level, the lightning network is a method for Bitcoin users to exchange currency value off the Bitcoin blockchain. This is accomplished using a few complex algorithms that interact with Bitcoin’s base script, and it allows for, that’s right, lightning quick payments at a fraction of the transaction fees.

What is bitcoin & the Lightning Network?

Think of Bitcoin’s main blockchain as a highway, and the Lightning Network as a series of side streets that reduce the highway's congestion from smaller transactions. First, two parties who wish to transact with each other set up a multi-signature wallet (which requires more than one signature to enact a transaction).

How much does the Lightning Network cost?

With the Lightning Network, you still pay two fees – one to open your channel, and another to close it. But you and your counterparty can make thousands of transactions for free once the channel is open. Once you’re finished, you just need to publish the final state to the blockchain.

Is the Lightning Network safe?

There’s also an increased risk of censorship since there are only a few points through which transactions are flowing. As of March 2022, the Lightning Network looks healthy. It boasts upwards of 35,000 online nodes, 85,000+ active channels, and just over 3,570 BTC in capacity.