Bitcoin is slow and charges high fees to use. The lightning network was created to keep the good things about Bitcoin while speeding it up and making it cheaper. If you want to learn how to send Bitcoin 9x faster while paying fractions of a cent, keep reading.
Not sure how Bitcoin works? Read our guide on Bitcoin explained for beginners.
How Does Lightning Work?
The Lightning network is built on-top of Bitcoin. It is not a separate blockchain or cryptocurrency.
The lightning network is somewhat like bank notes representing gold stored in a vault. You own the gold and could theoretically pay for shipping and store it at home. However, this would be expensive and risky, so instead you use the bank notes. Now imagine you want to transact with someone. You could give them the gold, or simply hand them the bank note entitling them to the gold stored in your bank.
This makes transacting, trading, and exchanging the gold orders of magnitude faster and cheaper than transferring physical gold bar when you are completing a transaction.
This is the exact same principle that the Lightning Network uses to speed up Bitcoin transactions.
To pay someone in LND:
- In your wallet app, create an invoice with the amount they owe you.
- Send them the link to that invoice.
- They open up the link on their favorite lightning wallet, and authorize the transaction.
Why is it Different?
This is different from the traditional crypto transaction where you directly send the crypto to their wallet. The main reason is that you are not simply transferring balances, what you are really doing is mutually agreeing that the ownership of the underlying Bitcoin has changed. Since there are no third parties or blockchain that verifies the transaction, the lightning network gets around this by creating the rule that if both parties agree on the amount, then the transaction is valid.
If we think about it in terms of our gold analogy this would be like trading the bank note for a gold bar from the local market. Sure we could go to the bank and exchange our note for our gold bar, but it's much easier to trade that note for an identical gold bar at the local market.
In theory you can settle from Bitcoin to Lightning and Lightning to Bitcoin. However, in practice, there are now essentially two Bitcoin networks both where both have the exact same value for Bitcoin. There is the initial Bitcoin network (called layer 1 or L1) and the secondary lightning network called L2. This brings up the questions...
How can I convert my Lightning Bitcoin to "normal" Bitcoin?
This is surprisingly harder than it would seem on the surface. After-all if Lighting is just an abstraction of Bitcoin, how hard would it be to just get my Bitcoin?
This is where decentralized exchanges such as Boltz become really useful. You don't need an account, or even an email address to use Boltz. Simply specify the amount you want to convert and the address to where the Bitcoin should be sent. Once you pay the invoice, the Bitcoin should arrive in your Bitcoin wallet.
The same process can be used to convert your BTC into Lightning.
With speeds 900% faster than Bitcoin and transaction fees fraction of a cent, Lighting has a lot to offer. How do you make the most of it?
- Create and fund a mobile wallet. Now you can use lighting to purchase goods at local bitcoin friendly stores. You could even tell your friends about lightning (maybe even share this post) and use lightning to settle tabs and restaurant bills.
- If you are a developer you could use lightning for verification. Due to its speed and being inexpensive, lightning could be used to verify ownership or gain access.
- Add the option to have your clients pay you in lightning.
Checkout this resource list of tools and apps built using Lightning
Convert Bitcoin to Lightning or Lightning to Bitcoin
Start accepting lightning payments with BTCPay