Lightning and layers

Why bitcoin needs layers

Bitcoin’s base chain handles roughly seven transactions a second on a good day. Visa handles thousands. This is not an oversight. Every transaction on the base chain is checked and stored by every node, for ever. Keeping blocks small keeps nodes cheap, and cheap nodes are what stop the system being run by a handful of data centres.

So bitcoin made a choice that the 2015 to 2017 block size war was fought over: keep the foundation slow, secure and open to anyone, and build speed on top. It is how money has always scaled. Gold settled debts between banks; paper and ledgers moved faster above it. Fedwire settles between banks; cards and apps run above that. In this picture the bitcoin blockchain is the settlement layer, and everyday payments happen a layer up.

The main second layer is the Lightning Network. Around it sits a growing family of sidechains and newer designs, each trading away a little of bitcoin’s trustlessness for speed, privacy or features.

The payment channel

Lightning rests on one idea. Two people lock some bitcoin into a shared address that needs both their signatures to spend. That is one transaction on the blockchain. From then on they can pay each other by signing updated versions of the balance, passing them back and forth privately. No fee to miners, no ten-minute wait. Only when they are done does the final balance go on-chain.

Open the channel below and try it.

What stops someone cheating?

Each time the balance changes, both sides hold a signed transaction they could broadcast to close the channel at that balance. The danger is that Bob broadcasts an old version from when he had more. Lightning’s answer is a penalty. If Bob publishes a superseded state, Alice has a window of time to prove it and take every coin in the channel. Cheating is possible to attempt and ruinous to get caught at, so in practice it does not happen. The catch is that someone must be watching the chain on Alice’s behalf.

From channels to a network

If Alice had to open a channel with everyone she ever paid, nothing would be gained. The breakthrough in the 2015 paper by Joseph Poon and Tadge Dryja was routing. If Alice has a channel with Bob, and Bob has one with Carol, Alice can pay Carol through Bob.

The trick that makes this safe is the hashed time-locked contract. Carol creates a secret and gives Alice its hash. Alice offers Bob a payment that he can claim only by revealing the secret. Bob offers Carol the same deal. Carol claims her payment by revealing the secret to Bob, which gives Bob exactly what he needs to claim his from Alice. Either the whole chain of payments completes or none of it does. Bob never has the chance to keep the money, and thanks to onion-style encryption he does not even know where the payment started or where it ends.

Scale that up to thousands of nodes and you have a network across which a payment can find its way in about a second, for a fee often measured in fractions of a cent.

Capacity and node figures from mempool.space as reported in Spark’s “State of the Lightning Network in 2026”, 3 June 2026. Private channels are not counted and may hold as much again.

Using Lightning in practice

To the user, Lightning is a QR code. The recipient’s wallet shows an invoice; the sender scans and confirms; both screens show success a moment later. Underneath, there are two very different ways to get that experience.

Adoption has grown in the least glamorous way possible: as plumbing. Large exchanges, including Coinbase, Kraken, Binance and OKX, let customers deposit and withdraw over Lightning, which is faster and cheaper than an on-chain transfer. Block has built Lightning into Cash App and is extending it to its Square merchant terminals. Strike and similar apps use it to move dollars across borders, with bitcoin as the invisible rail in the middle.

Since 2025 Lightning has also been able to carry things other than bitcoin. Lightning Labs’ Taproot Assets protocol lets stablecoins travel over Lightning channels, and Tether’s USDT has been issued on it. Supporters see this as bitcoin’s network becoming a general payments rail. Others would prefer Lightning to remain about bitcoin alone.

Wallets are described on the buying and storing page.

Where Lightning falls short

• Receiving needs inbound liquidity. You can only be paid if someone has funds on their side of a channel pointing at you. Wallets paper over this, at a cost.
• You have to be online. A Lightning wallet must be reachable to receive, and something must watch the chain to catch a cheating partner.
• Large payments are harder. A payment must find a route with enough liquidity at every hop. Small payments nearly always succeed; big ones often need to be split or sent on-chain instead.
• Opening and closing still cost on-chain fees. When the base chain is congested, small channels become uneconomic. This is one argument behind proposals such as covenants, which would let many users share one on-chain output.
• Much of the convenience is custodial. A large share of everyday Lightning use runs through companies holding users’ funds.
• It has not replaced cards. Public capacity is a tiny fraction of all bitcoin. The number of public nodes is lower than at its 2022 peak. Lightning works well and is used at scale, but mostly out of sight.

Sidechains and federations

A sidechain is a separate blockchain to which bitcoin can be moved, used under different rules, and later moved back. The weak point is always the bridge: something has to hold the real bitcoin while its stand-in circulates elsewhere.

Newer designs: Ark, Spark and BitVM

The past three years have produced a burst of new ideas for scaling without changing bitcoin’s rules.

• Ark, proposed in 2023 by a developer known as Burak, has users hold “virtual” outputs that are batched together by a service provider and periodically anchored on-chain. There are no channels to manage and no inbound liquidity to arrange, and users can always exit to the base chain on their own. Several implementations are in early use.
• Spark, from the payments company Lightspark, builds on an older idea called statechains, in which ownership of an on-chain coin is handed from person to person off-chain with the help of a group of operators. It went live in 2025 and supports stablecoins.
• BitVM, published by Robin Linus in 2023, showed that bitcoin can verify any computation without new opcodes: one party makes a claim, and anyone can challenge it on-chain if it is false. That opened the way to “rollup” style systems and bridges in which funds are safe so long as at least one honest participant is watching. A crowd of projects now calls itself a bitcoin layer 2 on this basis; their real security varies a great deal and deserves scrutiny.

What unites them is an attempt to get more out of the base chain without asking it to change. Whether bitcoin should change, by adding covenants, is the debate covered on the how it works page.

Ordinals, inscriptions and runes

In January 2023 a developer named Casey Rodarmor released a piece of software that did two things. It defined a way to number every satoshi in the order it was mined, so individual sats could be told apart and tracked: ordinals. And it let users attach data to a sat by tucking it into the witness section of a transaction, where SegWit and Taproot had made space cheap: inscriptions. Bitcoin suddenly had its own version of NFTs, with the image itself stored on the chain.

What followed surprised everyone. Within months there were millions of inscriptions. An experimental token standard, BRC-20, used inscriptions as a clumsy ledger and briefly pushed fees to their highest since 2021. In April 2024 Rodarmor launched Runes, a tidier token protocol, in the very block of the fourth halving, and users paid a fortune in fees to be first.

The technology is modest. The argument it started is not.

That disagreement is what led to the split between Bitcoin Core and Bitcoin Knots in 2025 and to the failed BIP-110 fork in August 2026. Activity in inscriptions and runes itself has fallen a long way from its peaks, but the question it raised, who decides what bitcoin is for, has not gone away.