Bitcoin’s Speed Problem
Bitcoin is secure and decentralized, but it is not fast. The blockchain can handle roughly seven transactions per second, and each transaction needs at least one confirmation — about ten minutes. For buying a cup of coffee or splitting a dinner bill, that wait is too long.
The Lightning Network solves this. It is a second layer built on top of Bitcoin that enables instant payments with fees so small they are often less than a penny.
How Payment Channels Work
The Lightning Network is built on a simple idea: not every transaction needs to be recorded on the blockchain immediately.
Imagine you and a friend buy lunch together every day. Instead of settling up each time, you could keep a running tab and settle once at the end of the month. That is essentially how a Lightning payment channel works.
Here is the process:
- Two people open a payment channel by locking some Bitcoin in a shared address on the blockchain. This is the only on-chain transaction needed to start.
- Once the channel is open, they can send Bitcoin back and forth instantly. Each payment updates a private balance sheet that both parties sign. These off-chain transactions happen in milliseconds, not minutes.
- When they are done, either party can close the channel. The final balances are settled on the blockchain in a single transaction.
The result: two on-chain transactions (open and close) can represent thousands of instant payments between them.
Routing Payments Across the Network
You do not need a direct channel with every person you want to pay. The Lightning Network routes payments through a chain of connected channels, much like how the internet routes data through a series of connected servers.
If Alice has a channel with Bob, and Bob has a channel with Carol, then Alice can pay Carol through Bob. Bob never controls Alice’s money — the payment is secured by cryptographic contracts that guarantee either the full payment goes through or nothing does.
This routing happens automatically. Your Lightning wallet finds the best path and completes the payment, usually in under a second.
Why It Matters
The Lightning Network makes Bitcoin practical for everyday spending. Here is what it enables:
Speed. Payments settle in less than a second. No waiting for confirmations.
Low fees. Sending a payment through Lightning typically costs a fraction of a cent, regardless of the amount. On the main blockchain, fees can spike during busy periods.
Small payments. You can send amounts as small as a single satoshi — one hundred-millionth of a Bitcoin. This makes micropayments possible for the first time: paying per article read, per second of a video streamed, or tipping a content creator a few cents.
Scale. While the base layer handles about seven transactions per second, the Lightning Network has no theoretical upper limit. It can process millions of payments simultaneously across its network of channels.
Tradeoffs to Know
The Lightning Network is not a magic fix. It comes with real tradeoffs:
- You need to be online. Unlike on-chain Bitcoin, which you can receive while offline, Lightning requires your wallet (or a service acting on your behalf) to be online to receive payments.
- Channel capacity limits. You can only send or receive up to the amount locked in your channels. This requires some planning for larger payments.
- Still maturing. The network has grown significantly — reaching over 5,600 BTC in channel capacity by late 2025 — but the user experience is still being refined. Wallet software improves with each release.
For larger, less time-sensitive transfers, sending Bitcoin directly on the blockchain remains the better choice. Lightning is best for frequent, smaller payments where speed matters.
What’s Next
The Lightning Network turns Bitcoin from digital gold into digital cash — something you can spend as easily as tapping a card.
To understand the base layer that Lightning builds on, start with What is Bitcoin?. To learn how that base layer stays secure, read about proof of work.