What is Bitcoin lightning network - simple explain

[Cryptornd]

Bitcoin is the most famous Crypto asset in the world because of it's decentralization And recent price surge . Bitcoin is stepping forward with changing and remaking the financial sector . usually bitcoin works as an inflation hedge. though bitcoin works as an inflation hedge it's scalability performance is low and it cost high transaction fees sometimes unaffordable . this is where lightning technology come in to play. concept of lightning network has taken much traction of blockchain users . bitcoin lightning network is a layer which built on bitcoin blockchain serves as a layer 2 solution . By this lightning network , congestion and high transaction fee problems are solved and the transactions can be finalized with maximum speed. It works as an off chain payment channel that created between two or more people.

These transactions through lightning network are not recorded on the bitcoin blockchain until the payment channel is closed by the two parties . that is why lightning network is called as an off chain solution .

How lightning network works??

Sender and receiver send amount of bitcoin to a common bitcoin wallet address . this creates a channel between both of them. once bitcoin are deposited on the channel , users are able to transact between them off the bitcoin blockchain which we called before off-chain.

In brief - if X and Y each deposit 0.001 BTCBTC into the common address . they can transact between themselves without number of time and duration limits until they close the channel .
 if Y owes X 0.0001 BTCBTC After all in channel transactions And they want to close the channel and withdraw their BTCBTC back. Y withdraws 0.0011 BTCBTC And X withdraws 0.0009 BTCBTC .

Only on chain transactions comes with high transaction fee. in this case those are channel opening And channel closing transactions only. All the other transactions in payment channel are consider as off chain transaction and it requires minimum transaction fee And contains high scalability .

As more people create lightning payment channels between each other , you can send BTCBTC to people even though you have never created a payment channel with.

In brief - There are X , Y And Z . Y has an open network with X and Z while other two users don't have payment channel between themselves . X,Z can transact through Y's common channel because Y's has an open channel with Z and X. if X wants to pay Z , X can send BTCBTC to Y through the channel And Y can transact the same amount of BTCBTC to Z with Y's lightning payment channel with Z.
 Anti-cheating measures are also included in lightning technology and if someone tries to steal any other's fund using old transaction record it can be found by any node. And that attempt can be blocked.

[1715119761]

1715119761

[franky1]

Sender and receiver send amount of bitcoin to a common bitcoin wallet address . this creates a channel between both of them. once bitcoin are deposited on the channel , users are able to transact between them off the bitcoin blockchain which we called before off-chain.

lets correct some things.

people LOCK UP some bitcoin to a UTXO, on the bitcoin network.. bitcoin never leaves the bitcoin network.. its impossible..  where that UTXO is not a common bitcoin address made by native bitcoin wallets/nodes.. . but a address created by a lightning node made specifically to hold up/lock in the coins. that the bitcoin network recently recognises as an acceptable address to have in bitcoin blocks
 
EG. bitcoins common address is a legacy address (starts with a 1).
EG. bitcoins common multisig address is a address (starts with a 3).
people cannot create a LN channel using the 1 or 3 style common bitcoin addresses.

they need to use the new format added in 2017 specifically added to bitcoin to be the LN/altnet gateway address formats that other networks can utilise(yep segwit was made specifically to have a format that allowed bitcoin to altnet locks to be formed sch as liquid,LN and other sidechain,subnets)

anyway. when using the formats compatible with altnets like LN where the LN node has funds on a key created by the LN node, (the private key(LN call the HSM secret) is not a standard bitcoin private key)
within the LN node another(second) transaction is made to the bitcoin network to then put a split of those funds into a channel LN address with further locks.
yep.
most LN wallets do not direct fund a channel.. people first need to "fund" their LN node address and then find a LN channel partner multisig address.. to lock up funds and let the channel establish its units of account pegs in the LN channel.. so in most cases 2 transactions are needed to actually get funds into a channels lock.

then inside LN channel(s) payment message go between LN users of channels are not measured in btc.. but instead measured in a completely different unit of account. called a msat.. (which is a peg of 1000msat=1sat)
these message/payments/invoices are not even bitcoin transaction common formats. they are different messages in a completely different order/format to a bitcoin transactions. and for emphasis, made using a unit of account that bitcoin does not understand.
EG 0.00003btc  is 3000sats.. which in LN is 3000000msat
bitcoin does not understand units of 0.00003000000 because that is 11 decimals of bitcoin, and bitcoin only understand 8 decimal limit.

as we all know from recent revelations of altnets that lockup bitcoin and then pretend to peg their new token/unit of measure to btc.. that peg can break.
there is no hard rule which all LN nodes are forced to follow(no consensus) that forces 1000msat to always be 1sat
be warned about this especially when recent news has been talking about the luna and usdt altnets of pegged tokens that broke their peg

Anti-cheating measures are also included in lightning technology and if someone tries to steal any other's fund using old transaction record it can be found by any node. And that attempt can be blocked.

IF the victim stays awake 24/7. stays online 24/7 or employees a service to watch for the cheating broadcast..
.. then. that attempt wont be blocked. but instead in the transaction out of the channel. the victim or its watchtower service can spend the funds before they are moved out of the LN network system of the locks and penalty mechanism of their formats

note the risk, and be warned. even the LN devs that created lightning have lost funds through theft. if they cant stop it the be very aware that LN is not as safe as advertised.

LN does have a small niche of utility. and by small i means small.. it is not a solution for everyone and the more users that use it the more channels and splitting up of funds people need to do to have possible routes to others. which in-of itself- becomes more risk of bottlenecks and problems making payments via needing to pass through more peoples channels along routes where each channel might have issues of liquidity or passing on funds.

LN has alot of other flaws. be risk aware of the flaws and dont just follow the positive hope.dream utopian adverts of LN. for your own safety be risk aware of your funds.

[Josesv]

These transactions through lightning network are not recorded on the bitcoin blockchain

[Little Mouse]

These transactions through lightning network are not recorded on the bitcoin blockchain

Of course they are not. That's why it's called off chain or side chain. That doesn’t matter much. It’s more or less same I think. You have to use on chain tx before using LN and of course after the settlement through LN, still you have to use on chain tx. I'm not sure but afaik LN should have their own records of settlement and they can be accessed through LN explorer, do they?

[franky1]

Of course they are not. That's why it's called off chain or side chain. That doesn’t matter much. It’s more or less same I think. You have to use on chain tx before using LN and of course after the settlement through LN, still you have to use on chain tx.

its a multi layered process. mostly explained in my first post.. but ill emphasise some stuff
BTC does not leave the bitcoin network
its locked.

people on LN make payments in different formats/units of measure(tokens) that are not bitcoin formats/units.
 
what is done is when a LN payment is successful they then both contribute a signature for a bitcoin(segwit multisig) formatted transaction they call a 'commitment' which is a TRANSLATION of the successful msat payment.
which they choose not to broadcast.

and instead make new payments and reveal the private key(revoke key) of that last commitment so that if someone did try to broadcast to the bitcoin network yet was not the correct or most updated commitment.. .. IF it got confirmed. its still on a lock.. and the victim could IF they were aware, awake.online or using a watchtower service. could use the revoke key(private key to the spend) to spend before the lock time expires back to themself. thus not letting the scum thief take the funds not deserved to them (emphasis on all the IF's)

I'm not sure but afaik LN should have their own records of settlement and they can be accessed through LN explorer, do they?

your node locally on your system keeps a bank statement style copy of each event it has processed. but you have to back it up.. its not part of any network log.

however this does not make LN private.
nodes on the LN route network are public and are given nicknames to identify them. so people can map out routes between channels/nodes..

when a channel is created or when a payment is successful they update the gossip protocol to tell the network there is something new about the channels.

there are many flaws of LN that allow people to reveal the 'gossip' of the channel updates and announcements and all the routes available to see when certain routes all send updates to the gossip protocol in quick succession. this can reveal when certain routes are used.
also by 'faking payments' along certain routes with differing amounts and cancelling it and repeating it (brute forcing) you can find out what liquidity each route has and how it changes over time. and piece together alot of info about where liquidity moves to and where it stops. so you can form a list of payments that have been made by others

alot of 'chain analysis' companies are already making algo's to do just that to form a map of nodes and channels and balance and watching where balance changes occur to then list which person paid which person and how much.