To use the Lightning Network for payments, users first need to set up a Lightning wallet and fund it with Bitcoin. The Lightning Network is a decentralized system for instant micropayments that prevent users from trusting third parties. It is built on top of the Bitcoin base layer (layer 1) and uses Bitcoin’s high protection standards to secure the network.
The Lightning Network allows for instant, atomic payments that do not require block confirmations to finalize. This makes it ideal for micropayments and smaller transfers, which are typically inefficient and costly on the Bitcoin network. Lightning can be used for point-of-sale transactions, device-to-device transactions, and instant payments without the validation of third parties.
To make Lightning Network payments, users need a Lightning Network-enabled Bitcoin wallet. Most wallets are mobile-based, and examples include Muun, Wallet of Satoshi, Phoenix, and Cash App. Users deposit BTC into a Lightning wallet to open a channel and create payment channels. Payments are made through channels instantly, with minimal fees, and without going through Bitcoin’s base layer.
To fund a Lightning wallet with BTC, users need to set up a wallet, select the network they want to use, and click on “receive.” They can then copy the receiving address onto the wallet they’re getting their funds from and add an invoice for payment.
The Lightning Network is an open-source project founded by Joseph Poon and Tadge Dryja in 2015. Lightning Labs, the company developing and maintaining the Lightning Network, released a beta version in 2016 and has gained increasing interest among developers and investors.
Cash App added the Lightning Network to its Bitcoin wallet in October 2022, enabling faster transactions with minimal fees. To deposit Bitcoin into Cash App, users need to enable Bitcoin withdrawals and deposits and copy their Bitcoin wallet address onto the relevant box. Users can deposit up to $10,000 worth of Bitcoin in any seven-day period.