Lightning Network Basics

The lightning network is a special layer adding faster payments and additional functionality to Bitcoin. Lightning enables participants to dramatically speed up Bitcoin transactions while still retaining many interesting qualities of Bitcoin, such as non-custodial transaction and settlement, at much lower fees for small payment values.

What is the lightning network? What are some popular lightning wallets, and when should they be used? How does a user set up and run a lightning node?

Bitcoin's Lightning Network is a faster way to send Bitcoin payments using an "off-chain protocol". Think of the Bitcoin blockchain becoming a kind of judge to help rule disputes between participants on the Lightning Network. In doing this, the Lightning Network makes some clever trade-offs that enable much faster and cheaper payments without sacrificing custody of the funds that are rightfully yours. The Lightning Network is a network of payment channels between Lightning nodes. By routing payments through these Lightning nodes and only settling "channel closes" to the Bitcoin blockchain, Lightning enables many more Bitcoin transactions per second at a far cheaper cost than doing standard on-chain Bitcoin transactions. In a sense, it's like "closing the tab" at a bar and only paying one time instead of paying for each item. One trade-off required with Lightning Network participants is that they must be online for transactions. 

In practice, if you are planning to use Bitcoin for "day-to-day" spending, then definitely consider using Lightning wallets instead of Bitcoin on-chain only wallets. This will result in a much smoother experience for you. For larger values, you will be fine using Bitcoin on-chain transactions only.


Easy Wallets for Day-to-Day Users

Beginner mobile Lightning wallets are Phoenix (Android only, but an iPhone version is coming), and Breez (for both iPhone and Android). These wallets manage the complicated Lightning components in the background while giving a new user an easy experience. Generally, to pay a Lightning invoice, you will just scan it with your phone and press "pay".


  • Lightning uses "channels", but Phoenix and Breez manage these in the background for you.
  • While these wallets display only a Lightning balance, you can pay either a Lightning invoice (QR or copy/paste) or a Bitcoin QR code. The wallets include a swap service to swap Lightning out to pay Bitcoin, and they operate in the background.
  • Other options are Wallet of Satoshi and BlueWallet, though these are custodial, meaning you do not hold the private keys. These also offer a simple user experience. 


Setting up Your Own Lightning Node for Enthusiasts and Professionals

Running your own Lightning node is more of a Bitcoin professional or enthusiast function, since it requires more technical capability and learning. Easy ways to do this include using a packaged node such as myNode, nodl, RaspiBlitz, or Umbrel. These are "plug-and-play" nodes that package Bitcoin Core and Lightning, making it easy for you to install and use. Once installed in your home, you can usually connect either a PC wallet application (such as Zap) or a phone wallet (such as Zeus or Zap) to your Lightning node. 

To run your own Lightning node, you will need to set up your own channels and manage liquidity and backups. This will take further research and work.

As of early 2021, Lightning Network is still not quite ready for the masses, but it is available and easy enough for more tech-savvy and motivated users. With further development, the situation will improve and become more straightforward.

For more information, see this optional Lightning Network guide.

Source: Saylor Academy
Creative Commons License This work is licensed under a Creative Commons Attribution 4.0 License.

Last modified: Monday, January 25, 2021, 4:22 PM