the Lightning Network is a payment protocol that settles to one or more blockchains (primarily Bitcoin as of 2018) offering fast and low cost payment transactions at the scale of billions per day.
Simple Conceptual Example
- Alice wants to make a payment to Bob for $4.
- Alice and Bob open a shared account (multi-signature aka multisig) on the bitcoin ledger each contributing $20 for a total of $40.
- Alice and Bob create a personal ledger.
- Alice's account is debited $4 leaving the balance of accounts at $16 and $24.
- This debit is sent in the form of a signature allowing Bob to "cash out" the shared account at the updated balances.
Either party can cash out or settle to the chain at any time with the most recent ledger (implemented using a smart contract).
Furthermore if Bob and Carol have an open ledger Alice can pay Carol through Bob.
Potential IndieWeb Variant
Given a bridge to bitcoin BB.
- Alice and Bob open the shared account with BB.
- Alice creates a payment entry on her own site for $4 to Bob. Either she @-mentions Bob's site or mentions a payment request entry he's already created on his own site.
- Bob creates a confirmed payment entry on his own site linking back to Alice's payment entry.
- BB stamps both party's final entries (Alice's payment and Bob's confirmation)
- Alice or Bob can settle at any time. BB issues the on-chain transaction.
Private posting and homomorphic encryption may be used to enforce payment privacy from the public and BB respectively. Furthermore the otherwise traceability of bitcoin transactions is obfuscated in this "second layer" setting.