The Lightning Network (LN) is a second layer technology built on top of Bitcoin’s blockchain. It uses multi-signature addresses and smart contracts technologies to create bidirectional payment channels that move transactions off-chain. The ultimate goal of LN is to scale Bitcoin’s transaction speed and throughput while retaining the overall security and immutability of the blockchain.
Like Bitcoin, the Lightning Network sends transactions through a peer-to-peer network. With LN, the transactions send in two ways:
1. Directly connecting two nodes together.
2. “Bouncing” a transaction through a web of interconnected nodes via onion routing. The parties routing the payment can’t see the final destination, just the next hop.
Lightning Network transactions are virtually instant and have the potential to have fees lower than a thousandth of a penny. Because LN transactions exist off chain, it doesn’t need miners to validate transactions. This means that transaction speeds on LN are ~600,000x faster than on-chain transactions and have nearly zero fees. For context, Bitcoin on-chain transactions speed is around 7-11 tx per second depending on the load on the blockchain. Lightning Network transactions are capable of millions of transactions per second, which makes it virtually instant.