The Lightning Network is a "Layer 2" payment protocol that operates on top of a blockchain-based cryptocurrency (like Bitcoin). It enables fast transactions among participating nodes and has been touted as a solution to the Bitcoin scalability problem. It features a peer-to-peer system for making micropayments of cryptocurrency through a network of bidirectional payment channels without delegating custody of funds. Lightning Network implementation also simplifies atomic swaps.
Normal use of the Lightning Network consists of opening a payment channel by committing a funding transaction to the relevant base blockchain (Layer 1), followed by making any number of Lightning transactions that update the tentative distribution of the channel's funds without broadcasting those to the blockchain, optionally followed by closing the payment channel by broadcasting the final version of the settlement transaction to distribute the channel's funds.To perform as intended, Lightning Network required a transaction malleability fix in the Layer 1 blockchain, such as Segregated Witness (SegWit) in Bitcoin.The lightning network has been described as Bilateral netting by FT Alphaville.