 So the Lightning Network is a layer-to-network. That means it is a network that runs as an overlay above Bitcoin. And it's important to understand that just because it has a different name doesn't mean that this is something that is different from Bitcoin. It works differently from Bitcoin, but when you are using the Lightning Network, you are using Bitcoin. You are transacting in Bitcoin. And the Lightning Network, in many ways, has the same security guarantees as Bitcoin, meaning that in order to transact on the Lightning Network, you do not necessarily need to trust anyone else. You can run a wallet in which you control the keys, you don't have to use a custodial system. And the Lightning Network is not, by default, a custodial system, although there are custodial systems within Lightning. That means somebody else controls your money. So the Lightning Network is an overlay network that runs on top of Bitcoin where you transact in Bitcoin. So what is the point of the Lightning Network? The point of the Lightning Network is speed and cost. That's the main focus. So the Lightning Network is fast. What do we mean by fast? It means that if you do a Lightning payment, and we call them payments rather than transactions, they differentiate from what happens on the Bitcoin chain. On the Lightning Network, if you do a payment, it usually completes in less than one second. So if conditions are perfect, then in less than one second, the payment will complete. And this is not something that people who are familiar with Bitcoin are expecting. The speed of the Lightning Network, it's lightning fast, that's where the name comes from, is often a surprise. There's no waiting 10 minutes for confirmations in a block. And when you make a Lightning payment and it completes in one second, that's not just transmitting the payments, that's done. It's settled, confirmed, finalized within less than a second. Now on the certain conditions on the network, if there isn't quite enough capacity, if there isn't a clear route between your wallet and the recipient, then it might take a few seconds to work out and sometimes the payments fail. So you might click and instead of a payment succeeding in a second, it might take five, six, seven seconds. But usually, if it hasn't happened in 10 seconds, it's not happening at all. You'll get an error message saying there is no route for your payments. So first feature of the Lightning Network is speed less than a second. And here's a funny story that illustrates this. If you go to some Bitcoin conferences, one of the things you might see at these Bitcoin conferences is various Lightning-enabled vending machines. And one of the classic ones is the Lightning-enabled beer tap. So this is basically a beer dispensing tap. So it's a keg with a beer tap. And that will dispense beer in return for a Lightning payment. And so the funny thing about this is when you have a system that takes less than a second for the payments to go through, the user interface and user experience design of your system has to be considering that aspect. And the first time I used the beer vending tap for Lightning, what I noticed and then watched happen again and again and again and it was very, very funny was that people were anticipating that there would be some slight delay. So they're fiddling with their phone, right? They're scanning the QR codes and they're hitting send. But their cup is in their hand. They're not ready. And so they hit send and the machine goes, bing, and starts pouring beer. And they have to rush and stick the cup underneath and lose some of the beer to the floor because it kept dispensing before people were ready. And so literally from send to beer starts coming out of the tap less than a second and they had to keep reminding people, put your cup, put your glass under the tap before you hit send on your wallet because it kept getting people surprised. So fast, that's one of the features. The second feature is cheap. So the Lightning network has fees, but these fees are very different from the transaction fees you have on Bitcoin. Because we're not relying on a limited space blockchain because the Lightning network is payments routed through peers on a decentralized network. The fees are actually much, much lower. And when I say much, much lower, I mean three or four orders of magnitude lower. So let's say your average Bitcoin transaction, let's say the fee is 5,000 satoshis. Nowadays, if you look at transaction fees, you're looking at about say 25 or 30 satoshis per byte in order to get into a block. And you're looking, the average transaction is about 200 bytes. So if you do that multiplication, you're looking at 4,000 to 6,000 satoshis in fee. Now 4,000 to 6,000 satoshis is $3 to $5 worth of transaction fee. So to make a transaction on Bitcoin, you're going to pay $3 to $5. If you're really lucky and it's a quiet day and there's not much happening, no chance of that right now because of the markets being on fire. You might get in for a fee under $2, but I wouldn't count on it. Now let's compare that to the Lightning Network. On average, a transaction will cost you anywhere from about 30 satoshis to 150 satoshis. So a Lightning payment will cost you a fraction of the cost. That's 50 times cheaper than the Bitcoin transaction. So you're looking at $5,000. So you're looking at a transaction payment fee that is measured in US cents and sometimes even less than a penny per payment. And that means that you can actually do micro payments. You can do 10 cent payments on the Lightning Network and it actually works, it makes sense because you're not spending all of your money on fees. So those are the two characteristics. Now on Lightning, because we're mostly dealing with smaller amounts, faster, cheaper payments, we usually denominate things in satoshis, SATs. Satoshis being the smallest unit in the Bitcoin blockchain. Everything is denominated in satoshis in the code at a technical level. As the famous saying goes on the Bitcoin blockchain, there is no Bitcoin, there's only satoshis. But if you don't know the conversion, one Bitcoin is 100 million satoshis. So satoshis is a very small unit. All right, so everything is denominated in satoshis, but interestingly enough, the Lightning Network can do smaller units than satoshis. And it does so by effectively rounding up if you want to settle a Lightning channel, because you can only transact satoshis, you can't go smaller than satoshis on the Bitcoin network, but you can on the Lightning Network because essentially the Lightning Network, you're exchanging signed transactions between participants, you can actually go lower. And so on the Lightning Network, one thing you'll see that might appear surprising is you'll see a new unit called MSATs or milli-satoshis. So these are thousands of a satoshi. So you can do a 1,000th of a satoshi payment if you want. Most wallets don't really show you that because that payment would be so small in equivalent fiat value that you wouldn't see that, but you certainly can do that on the Lightning Network. And fees, the payment fees are actually calculated in milli-satoshis, not in satoshis. So the Lightning Network works through a system called payment channels, and payment channels are essentially bilateral smart contracts between two participants. So a participant in the Lightning Network is called a peer. If you're running a Lightning wallet or Lightning node, you are a peer in the Lightning Network, and you connect with payment channels to other nodes or peers in the Lightning Network. And essentially you have a channel to another node, and if you want to send and receive payments, you have to send them through that channel. You may have five, six channels, or maybe only have one or two channels. And in order to send the payment across the Lightning Network, the Lightning Network specifically your client, your node, your wallet, will need to construct a route. And the way it does so is by finding ways to connect from you to the final recipient. So when the Lightning Network is operating normally, all of the different clients, nodes or peers, I'm using those terms interchangeably, all the different Lightning nodes are advertising all the channels they have. So they advertise channels such as, okay, I have a channel from Andreas to Bob. Bob has a channel from Bob to Charlie. Charlie has a channel from Charlie to Diana, et cetera, et cetera. So each node is advertising what channels it has, as well as what payment fee will charge someone to use that channel. Now let's say I, Andreas, want to make a payment to Diana. Diana will send me an invoice or payment request and I want to pay that on the Lightning Network. When I go to pay that, I will not normally, I will not have a direct channel to Diana, but I don't need to have a direct channel to Diana as long as there is a path that connects channels together that can get from me to Diana. And this is a bit like drawing a map or getting directions on Google Maps. And essentially the software is solving a similar problem. If you want to go from Barcelona to Berlin, obviously it would be very easy if there was the Barcelona to Berlin highway that you basically started driving down until you reached Berlin. And you didn't have to turn or change paths at all and there was a single connecting path. And of course, if there is a single directing path, then you just use that. But in real life, usually there isn't. And so what Google Maps has to do to find directions or what the Lightning Network node has to do in order to send a payment from Andreas to Diana is find a path that gets the two connected. And so it will look at this database of tens of thousands or hundreds of thousands of channels that have been advertised. And it knows what the destination is and it knows what the sender is and now it needs to assemble a path that connects the two. So we'll say, okay, well, we need to get to Diana. Who is Diana connected to? Diana is connected to these five other nodes. Am I connected to any of these other five nodes? No, what about what nodes are they connected to? And what nodes are they connected to? And working backwards all the way to the beginning, eventually my node is going to figure out that because I have a path from Andreas to Bob, that's one channel, that's the only channel I can use. And then also knows, my node also knows that Bob has a channel to Charlie and Charlie has a channel to Diana. My node can figure out that, okay, Andreas to Bob to Charlie to Diana is a route, a path that can be used. And then it will construct the payment along that route and send that payment across the Lightning network. Now, if all goes well, that takes a second. If sometimes the path is long or complicated and it might take a bit longer to calculate that path. A Lightning path can be up to 20 channels long. And interestingly enough, because of a trick of encryption that is used, each participant in that path, so for example, in the Andreas Bob Charlie Diana path, the participants in the middle, Bob and Charlie, have no idea what the total path is and where the payment is going. Bob will only know that they have been given a payment from Andreas and that they must send this payment on their channel to Charlie. But they don't know if Charlie is the end recipient or if Andreas is the original sender. Bob only knows that though it came in one channel and it's going out the other channel. They only see one channel around them. They're immediate neighbors. And so as far as Bob is concerned, Andreas might be the sender or Andreas might just be one more in a long path. In fact, maybe another 10 other nodes might be before Andreas. And Bob doesn't know if Charlie is the final recipient or if maybe there's another 10 nodes after Charlie. And so this gives us a tremendous amount of privacy, which we don't have in the Bitcoin network, another interesting feature of the Lightning network. So this is basically the fundamental working concept behind the Bitcoin Lightning network. Lobster Messiah in the chat says, I always enjoyed the open bar tab that eventually gets settled. It's a decent explanation of the Lightning network. And so that's another great way to describe it. I've used that description myself. And so if you think of each of the channels, each of the channels is set up as a transaction on the Bitcoin blockchain. You can think of that as almost like a bar cap, an open line of credit. So when I have a tab between me and Bob, a channel between me and Bob, it's like opening a bar tab where Bob is the bartender. And in a normal bar scenario, you open a bar tab, you basically go and say, I'm gonna have one drink, but don't charge me yet. Here's my credit card or authorize $20 on this credit card and I may have two or three drinks. And at the end of the night, we're going to settle this tab. In many cases around the world, you'll even see scenarios where people keep bar tabs open for days, weeks, months, years even. And they settle periodically by making a partial payment and then keep the tab open the entire time. And you can do that in Lightning too. You can open a channel and you can do transactions back and forth along that channel. And you don't actually have to ever close that channel unless you want to. And as long as you have that channel, you can do transactions across it. What's interesting about the Lightning network is that if you went to a bar run by Bob and Andreas and Charlie were playing darts and they placed a bet on the darts board. And so Andreas now owes Charlie some money because they lost the bet, right? So I lost the bet and I owe Charlie $10. Rather than paying Charlie directly, that's opening a channel with Charlie, I can go to the bartender Bob and I say, hey, Bob, I know I have a $20 tab with you and I know that Charlie also has a drinks tab with you, but since I now owe him some money, can you take $10 off my tab and add it to Charlie's tab? And in a nutshell, that's exactly how the payment channels are connected together. What Bob does says, well, okay, if I take $10 off Andreas's tab and I add $10 to Charlie's tab, my situation hasn't changed at all. Instead, they've effectively moved money to each other without actually moving money to each other just by changing two bilateral agreements, one between Andreas and Bob the bartender and one between Charlie and Bob the bartender. So that's effectively what we're doing on the Lightning network. And it's a very effective mechanism, especially since in this particular case, everyone has a tab with everyone in terms of the channels and you don't get to see if the person you're moving from one channel to another is the final recipient or the original sender. All right, so it's important to realize the Lightning network was first launched as a test network in 2018. It was then launched as a full production network in 2019. I actually have one of the early day pictures where in the test network, there's about a hundred nodes on the Lightning network, mine is one of them, and you can see a picture of the entire Lightning network. You can't do that anymore because the Lightning network is very, very big. And because there are a number of unadvertised channels, so that we can never see the full extent or size of the Lightning network, we only see the part of it that is advertised. And even though it started in 2019, we have to realize that it is still an ongoing experiment, it is still an experimental network and things can and do go wrong. In terms of the feel of the Lightning network, to me it feels very similar to how Bitcoin felt in 2012 and 2013. In fact, Bitcoin was fast and cheap in those days. We would accept unconfirmed transactions because people didn't know how to do double spends effectively. And we would also get away with doing transactions with zero fees. So the Bitcoin network in those days was fast and cheap because not many people were using it. But in other ways, it's also similar to how Bitcoin was in 2012 or 2013 in that things were a bit raw. The user interfaces were not fully developed. There was a lot of new terminology that people didn't understand well. There was a kind of a vagueness about how it worked in the background. People were using it without understanding how it worked. And if you start using the Lightning network today, you will get that same feel. You'll notice that the wallets and user interfaces are not as polished, although they've gotten a lot better in the last few years. The experience can sometimes be frustrating where you try to make a payment and it doesn't go through and you have no idea why it's not going through. Specifically, just before we did this webinar in the last couple of days, I did notice that I had some technical problems in my shop, the Antenot Shop, which has a Lightning payment nodes that accepts payments in Lightning. And for a completely unrelated reason, had nothing to do with Lightning, but in fact, the system it was running on had run out to disk space. And I had to do some cleaning up in order to get that running again. And then of course, when I got it running, it had to spend a few hours syncing the chain because it had fallen behind. And so it took a bit of housekeeping to get it to work. And I have, I will admit from time to time, I've had on my shop, sometimes lots of channels. I used to run a very big node, I don't anymore. I used to have lots of channels with lots of inbound liquidity for my shop. Now I don't as much, it's a much smaller node. I've limited its function for the shop. And so I didn't have enough inbound liquidity and actually getting a payment through was a bit of a pain, but it's now working. It takes a bit more work and it's not always as easy. So who is the Lightning network for? I find that it's for a different type of payment than you might use on Bitcoin. And that's actually expressed in the policies of my shop infrastructure, where if you try to do a payment under $25, it's not going to let you do that on the Bitcoin blockchain. It's not gonna let you do that on chain, as we say, because under $25, the fees are going to be too expensive and it's going to leave you with an unpleasant user experience once you realize either that you have to pay a lot of fee or you don't pay sufficient fee and then your transaction gets stuck. Instead, if you try to make any kind of purchase on my shop under $25, it's going to default to being a Lightning payment and it won't let you do a non-chain payments for that. Conversely, if you want to do a payment over $25, it's gonna default to doing it on the Bitcoin blockchain because doing a large payments on Lightning is actually more difficult than doing small payments. In order to route a payment on the Lightning network, you have to be able to construct a path, as we said before, but the path has to have sufficient capacity at every link of that path, at every link of that chain, in order to get the payments through. And so the bigger the payments you're trying to make, the more difficult it is to route it across the Lightning network. So the Lightning network really works best for small payments. So under $10 is ideal, but anything under $25 is where you're gonna get the sweet spot, right? Where it's too small to make on the Bitcoin blockchain without incurring a large fee and is just right, it's perfect for doing on the Lightning network. All the way down to making payments for microservices or micro payments where you want to do a one penny payment, for example, in order to activate a feature in a website and you can use that for anti-spam reasons, right? Where you want to, or you wanna sell an article or a blog and you wanna do it for one penny per read. So it's a micro payment, something that doesn't really exist in other traditional payment systems other than if you have a fully custodial payment system. So the ability to do micro payments is a whole frontier that's opened up for it. And so finally you might be asking, oh, this all sounds great, but when and how should I try that? And we tried to give you a bit of a preview of that. But if you want to try it, one of the things you can do is use it on my shop to do a very small transaction, one that you wouldn't do on the normal Bitcoin blockchain. And let me give you some specific information about that. So first of all, we have a digital product that is the least expensive digital product is the Blockchain Common Smart Custody book. It's three bucks 50, but that's not inexpensive enough. So in order to go even lower, we've created a discount coupon code that you can use to get a 90% discount which will take the price down to 35 cents. And so the experience of seeing a 35 cent payment go through on the Lightning Network really gives you a feel for the power to do this at low cost, cheap and fast and really experience the sweet spot of where the Lightning Network is. Of course, $3.50 is also perfectly within the sweet spot, but I don't want you to think that I'm setting up this experiment in order to profit from your tests. I think 35 cents gives you enough of an experience without really being a huge fundraising opportunity for us, so you start questioning my motives. So this is a coupon code for patrons only. Please do not share it outside. And that's because I want you to know and use it. And the coupon code is, and if you put that all one word into the shop, you get a 90% discount and then you can do a 35 cents transaction. As the backend for the shop, we use an open source project called BTC Pay Server and BTC Pay Server allows us to accept payments in Bitcoin and Lightning, as well as in my case on my shop, I've also enabled Monero for that, but it's really kind of the pure solution for crypto because it's open source, it's non-custodial and it's a great solution. It's a bit more on the techie side. Setting something up like that will require you knowing how to build a Linux server or run a Docker image. And you can certainly install it on something like a Raspberry Pi or a mini PC. And if you are ever interested in running a shop, that's one thing you might want to look into because it integrates very nicely with platforms like WordPress and others in order to allow you to run a web shop that accepts Bitcoin and Lightning payments. Now you don't need to know anything as the mod is pointing out about BTC Pay Server in order to use it, but if you're wondering, well, how does this work? How is he doing this? That's how I'm doing it. And I'm a sponsor and in the past I've been a contributor of funds, not code. I think I sent in a bug report, but I've been a contributor of funds to the BTC Pay Server project because I think it's a very valuable open source project and I agree with our philosophy and attitude. Hi, I'm Andreas Antonopoulos. If you enjoyed that video, consider that it takes a lot of work to produce open and free content that can be shared with everyone around the world. This isn't sponsored by some company. It's not promoting a product or an altcoin or some kind of investment scheme. My goal is simply to help explain the technology of Bitcoin and open blockchains to as many people as possible in a neutral way that focuses really on the incredible possibilities that this technology brings us. If you'd like to support that mission, subscribe to my channel and go on patreon.com slash aAntonop where you can participate and help me build better content for more people. Thank you.