Lightning Network: How this Layer-2 technology solves the main issues of Bitcoin

When it comes to scaling Bitcoin, one name always comes to the forefront — Lightning Network. But what is it really? And why do developers and traders consider it one of the most promising solutions for everyday Bitcoin payments? Let’s find out.

Why Bitcoin Needs a Layer-2 Solution

Bitcoin operates slowly. This is not criticism, but a fact: the main blockchain processes only 7-10 transactions per second, while fees during network congestion can skyrocket to astronomical heights. For large transactions or long-term storage, this is normal — Bitcoin was designed as “digital gold.” But for coffee, microtransactions, and quick settlements between parties? Here, Bitcoin shows its weaknesses.

That’s why in 2015, Joseph Poon and Thaddeus Dreyzeh published a whitepaper describing a completely new approach to scaling — Lightning Network. The idea was revolutionary: instead of burdening the blockchain itself, create a network of parallel payment channels on top of it.

How Lightning Network Works: The Essence of the Technology

Lightning Network is a second-layer protocol (Layer-2) built on Bitcoin. Its main feature? Payment channels between participants, through which transactions are conducted off the blockchain.

Imagine two people who frequently exchange money. Instead of writing each transaction to the blockchain, they open a channel between themselves — similar to a joint account in a multi-signature wallet. Inside this channel, they can perform as many transactions as they want almost instantly and with minimal fees. Only two events are recorded on the blockchain: the opening of the channel at the start and its closing at the end with the final settlement.

But that’s not all. Lightning Network allows routing payments through multiple channels simultaneously. If you don’t have a direct channel with the recipient, your payment can pass through a chain of connected channels of other participants. This creates a vast network capable of processing up to 1 million transactions per second — incomparably more than the main Bitcoin network.

Moreover, all these operations occur off-chain, which means increased privacy: payment information is known only to the parties involved in the transaction.

From Idea to Practice: The History of Lightning Network

The whitepaper was published in 2015, but that was only theory. Real work began much later. The first beta version of Lightning Network on Bitcoin mainnet appeared only in 2018. Long wait? Yes. But it was worth it — today, Lightning Network is actively developing and integrating into various Lightning Network apps and wallets.

Bitcoin Network vs. Lightning Network: Which to Choose

Both systems operate within the Bitcoin ecosystem but serve different purposes. Here’s how they fundamentally differ:

Purpose:

• Bitcoin — for large transactions and long-term value storage (digital gold)
• Lightning Network — for fast, frequent microtransactions (like cash in a wallet)

Security and Decentralization:

• Bitcoin relies on full decentralized consensus — maximum security
• Lightning Network emphasizes speed and efficiency, requiring some compromises in full decentralization

Processing Method:

• Bitcoin — all transactions are recorded on the blockchain (on-chain)
• Lightning Network — main operations occur off-chain (off-chain), with the blockchain only involved during channel opening and closing

Fees:

• Bitcoin — variable fees, high during congestion
• Lightning Network — minimal fees, almost independent of network load

Privacy:

• Bitcoin — all transactions are open and recorded on the blockchain for verification
• Lightning Network — payments are visible only to participating parties, providing greater privacy

Versatility:

• Bitcoin — works only with BTC
• Lightning Network — supports not only Bitcoin but also Litecoin, Stellar, XRP, Ethereum, Zcash, enabling quick transactions between different assets

Why Lightning Network Is Critically Important for Bitcoin’s Future

With the emergence of Bitcoin ordinals and BRC-20 tokens, the load on the main blockchain is only increasing. Lightning Network becomes not just an improvement — it’s a necessity.

Unlimited Scalability: Bitcoin’s blockchain has strict limits on the amount of data in a block. Lightning Network bypasses this limit, allowing millions of transactions to be processed in parallel. The network congestion problem is essentially solved.

Speed That Matters: Confirming a regular Bitcoin transaction can take from 10 minutes to hours. Lightning Network offers near-instant payments. This fundamentally changes the possibilities of using Bitcoin for real payments.

Fees That Don’t Eat Your Wallet: During high activity periods, Bitcoin transaction fees can be exorbitant. Lightning Network allows payments with fractions of a satoshi in fees, opening Bitcoin to microtransactions and everyday operations.

Path to Mass Adoption: By solving these three issues, Lightning Network makes Bitcoin a practical tool for daily settlements, not just a store of value. It’s the key to expanding the ecosystem and attracting new users seeking fast and cheap payments.