The Lightning Network enables fast and cheap transactions on top of the Bitcoin blockchain from "summary" of The Bitcoin Standard by Saifedean Ammous
The Lightning Network is a second-layer protocol that operates on top of the Bitcoin blockchain. It aims to address the issue of slow transaction speeds and high fees associated with on-chain Bitcoin transactions. By allowing users to create payment channels between each other off-chain, the Lightning Network enables fast and cheap transactions that are settled on the Bitcoin blockchain only when necessary. To use the Lightning Network, users need to fund a payment channel by locking some Bitcoin in a multi-signature address shared between the two parties. This amount represents the maximum that can be transacted between them. Once the channel is open, the two parties can transact as many times as they want, with the final balances settled on the Bitcoin blockchain when they decide to close the channel. The beauty of the Lightning Network lies in its ability to facilitate instant transactions between parties without having to wait for confirmations on the Bitcoin blockchain. This is achieved by using smart contracts that enforce the agreed-upon rules of the payment channel and by updating the balances off-chain through a series of transactions. Since transactions on the Lightning Network are not recorded on the Bitcoin blockchain until the channel is closed, they do not incur the same fees and time delays associated with on-chain transactions. This makes the Lightning Network an attractive solution for microtransactions and everyday payments that require speed and efficiency.- The Lightning Network enhances the scalability of the Bitcoin network by offloading a large number of transactions onto a second layer that operates independently but settles back onto the main blockchain when necessary. This innovation opens up a world of possibilities for Bitcoin, allowing it to be used for a wide range of applications beyond just store of value or large transactions.
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