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Definition: Lightning Network

A parallel network to Bitcoin for small payments (micropayments) that are confirmed much faster and with significantly lower fees than regular Bitcoin transactions. Deployed in 2016 and known as a "Layer 2 blockchain," the Lightning Network is used to accumulate multiple payments and then commit a summary to the Bitcoin chain (Layer 1), making the transactions tamperproof. As Bitcoin became more popular, a Layer 2 network became indispensable to keep up with the traffic. In 2021, the Lightning network soared with more than 15,000 nodes in operation.

Payments between two parties are established as bidirectional smart contract channels. When either party closes the channel, the total is settled on the Bitcoin chain. If a channel is not open between two parties, payments can still be routed between them if there are other open channels to provide a path. See Bitcoin, Layer 2 blockchain and blockchain.