Lightning Network is a second layer for Bitcoin payments. Participants update signed channel states off-chain; Bitcoin transactions provide funding and final settlement. It issues no separate coin.
A standard channel locks BTC in a funding output; new commitment transactions change the allocation between peers. Cooperating peers do not record every payment in a block. In a custodial app, however, the provider manages keys and state; an app balance alone does not prove control of a channel. [BOLT 0: Lightning overview]
Payments can traverse several channels using HTLCs with a hash and timeout. Every hop needs available directional liquidity; total channel capacity is not the amount one can receive or send. Forwarding fees, reserves, HTLC limits and node availability can constrain a payment attempt. [BOLT 2: channel protocol]
Unilateral closure uses a commitment transaction and can involve delays and on-chain fees. Revocation-based channels require timely response to a revoked state being published; a watchtower can assist monitoring. Recovery depends on the implementation and channel backups, not automatically a seed phrase alone. Fast ordinary payments do not imply unconditional instant on-chain withdrawal. [BOLT 5: on-chain handling]
Balance moves inside a channel
A channel funded with 1,000,000 sats may begin with all outbound liquidity on one side. After paying 200,000 sats, the latest channel state reallocates that amount to the remote side without putting the intermediate update in a block.
For the clearest picture, read this entry together with Transaction, SegWit, Taproot, Bitcoin wallet, Transaction fees. The reverse links also lead from Bitcoin wallet, SegWit, Taproot, Bitcoin address.
01Are Lightning payments recorded on the blockchain?+
Channel funding and closing transactions are on-chain. Intermediate balance updates are exchanged off-chain and only the latest enforceable state needs to settle on-chain if the channel closes.
02Can a Lightning payment fail without losing funds?+
Yes. A route may lack liquidity, expire or disappear. The protocol’s atomic construction normally makes the payment either complete across the route or fail without partially paying intermediaries.