How does the Lightning Network work?

The Lightning Network is a decentralized protocol, meaning that it is not controlled by any entity or group, and relies on a distributed network of users. Similar to Bitcoin, each participant must maintain its own network node that communicates with the other participants.

Similar to Bitcoin, the Lightning Network allows users to transact directly with each other without the need for custodians such as a bank or centralized payment processor. This helps reduce transaction fees and improves the speed and efficiency of the Bitcoin network.

The Lightning Network runs on the Bitcoin blockchain and uses multi-signature wallets to enable the creation of payment channels. That is, these channels function as joint accounts, where both participants need to sign the transactions.

The differential of this second layer network working in parallel with the first layer network is the instantaneous processing capacity without requiring the Bitcoin blockchain, except for opening or closing a payment channel on the Lightning Network.