Lightning participants lock bitcoin in on-chain funding transactions and update the allocation off-chain. Payments can route across connected channels using conditional transfers, while Bitcoin’s base layer remains the ultimate settlement and dispute system.
A channel’s parties exchange newer commitment states instead of publishing every payment. Multi-hop routing lets a payer reach recipients without a direct channel, provided a path has sufficient outbound and inbound liquidity.
Lightning offers speed and reduced on-chain footprint but introduces liquidity management, online monitoring and routing complexity. Custodial wallets can hide those difficulties at the cost of trusting an operator.
Settles ultimately to Bitcoin
Payments update channel balances off-chain
Requires routed liquidity
Can be self-custodial or custodial