The Lightning Network.
Bitcoin for everyday payments.

Section 1 · The problem Lightning solves

Bitcoin's base blockchain processes approximately 7 transactions per second verify×DON'T TRUST, VERIFYClaim: Bitcoin's base layer processes approximately 7 transactions per second.Verify at: Bitcoin Wiki: Scalability ↗7 TPS is the commonly cited theoretical maximum based on average block size, transaction size, and 10-minute block times.. Visa processes approximately 24,000 transactions per second.

For Bitcoin to function as everyday payment money, not just as a savings asset, it needs a way to scale beyond the base layer. The Lightning Network is that scaling solution.

Section 2 · How payment channels work

Two people who transact often can open a payment channel: a direct line between their wallets with a shared balance.

Step by step

1. Alice and Bob open a channel by together putting Bitcoin into a shared multi-signature address on the Bitcoin blockchain. This opening transaction costs a small miner fee.
2. Alice can now send Bob satoshis instantly, off-chain. Bob can send back. They exchange cryptographic signatures updating the shared balance. No blockchain transactions. No fees.
3. When done, either party can close the channel. The final balance broadcasts to the Bitcoin blockchain as a single transaction. One closing transaction regardless of how many payments happened in between.

The network part

You do not need a direct channel with everyone you want to pay. If Alice has a channel with Bob, and Bob has a channel with Carol, Alice can pay Carol through Bob without a direct channel. This routing creates a network. Alice can pay anyone with a Lightning channel via any number of intermediate hops, in seconds.

Section 3 · Wallets

Custodial (easier, less sovereign)

• Strike: popular for US users, easy onboarding, links to bank accounts.
• Cash App: accepts Lightning, broad US adoption.

Risk: custodial means a company holds your Bitcoin. If they fail or freeze accounts, you may lose access. Not your keys, not your coins.

Non-custodial (harder, sovereign)

• Phoenix Wallet: the best non-custodial Lightning experience for most users. Self-custodied keys. Automatic channel management. Single fee model verify×DON'T TRUST, VERIFYClaim: Phoenix Wallet provides automatic channel management with a single fee model.Verify at: phoenix.acinq.co ↗Phoenix is built by ACINQ, a major Lightning implementer. Verify availability in your region; the wallet is not available everywhere..
• Breez: non-custodial with built-in features for merchants.
• Zeus: advanced self-custodied wallet that connects to your own node.

Node + wallet (most sovereign)

Running your own Lightning node gives you the most control and privacy. Umbrel, Start9, and RaspiBlitz all support Lightning node operation. See Running a Bitcoin Node.

Section 4 · The honest limitations

Liquidity

Payment channels need pre-funded liquidity. To send 100,000 sats you need 100,000 sats in an outgoing channel. To receive, a channel needs incoming capacity on the other side. Liquidity management is the main complexity for non-custodial users.

Online requirement

Your node or wallet needs to be online to receive Lightning payments. Hardware wallets (cold storage) cannot receive Lightning payments while offline.

Channel-closing risk

If a counterparty tries to close a channel with an old state (cheating), you must be online within a time window to dispute it. This is handled automatically by most modern wallets but is a real consideration for custodial-grade reliability.

Not for large amounts

Lightning is designed for frequent, smaller transactions. Large transfers are better done on-chain. The two layers complement each other.

Section 5 · eCash, Liquid, and Ark (other layer-2 approaches)

eCash (Cashu, Fedimint)

Builds on the eCash concept from David Chaum in the 1980s. Fedimint is a federated mint where a group of trusted custodians hold Bitcoin and issue cryptographically private bearer tokens. Cashu is a simpler eCash implementation. Privacy advantage: eCash tokens are fully private; the mint cannot link tokens to identities. Trade-off: federated trust (you trust the mint operators not to rug you).

Liquid Network

A Bitcoin sidechain operated by a federation of exchanges and businesses. Faster settlement than on-chain Bitcoin. Supports issued assets and stablecoins on Bitcoin. Trade-off: federated, not as trustless as Lightning or the base layer.

Ark

A proposed protocol for off-chain Bitcoin transactions. Aims to solve Lightning's liquidity and receiving problems. As of early 2026 in active development, not widely deployed. Worth tracking but not yet a production option.