The Lightning Network is a layer built around Bitcoin payment channels. Participants lock bitcoin into a channel and exchange signed updates describing how its funds are allocated. Repeated payments can therefore occur without recording every update as a separate transaction on Bitcoin’s blockchain.
Payments across connected channels
A sender does not need a direct channel with every recipient. Payments can pass through intermediaries, using conditional payment mechanisms to link transfers along a route. Routing nodes may charge fees for providing this service.
For example, a payment can travel from Alice through Bob to Carol if suitable channels have enough liquidity in the required direction. Total channel capacity alone does not establish how much can currently be sent or received.
The blockchain remains relevant
Opening and closing channels involve on-chain transactions. Cooperative closure settles agreed balances; unilateral closure provides an exit when cooperation fails, but can involve waiting periods and additional fees.
Lightning can make suitable payments fast and inexpensive, but success depends on connectivity, route availability, liquidity, and wallet implementation. Self-custodial operation also requires appropriate channel-data protection and monitoring of on-chain events. A custodial Lightning service adds reliance on its operator.
Lightning uses bitcoin rather than issuing a separate mandatory network coin, and off-chain payment activity does not guarantee anonymity.