Lightning & layer 2

Lightning exists because block space is scarce and a coffee should not have to bid against a settlement for it. The idea is simple even where the vocabulary is not. Two parties lock bitcoin in a channel, trade signed updates about how it is split, and only the opening and the closing ever touch the chain.

Everything else follows from that. A channel has a capacity and it has a direction, so one that has been used hard in a single direction cannot receive again until it is rebalanced. Routing means finding a path of channels between you and the person you are paying, which is why a Lightning payment can fail in ways an on chain payment cannot. Invoices carry an amount and they expire, which is why Lightning feels less like sending money and more like paying a bill.

The trade offs are real and this section names them. Channels need funds that are online and watched, a different risk model from cold storage. Force closing is what happens when a counterparty vanishes, and it costs an on chain fee at whatever the fee rate happens to be that day.

Sidechains, statechains and the other layer two designs are here too, along with what each one is really asking you to trust.