What is the Lightning Network?
The Lightning Network is a payment system built on top of Bitcoin. Think of Bitcoin as a slow, secure foundation — like the banking system’s settlement layer — and Lightning as the fast, everyday payments layer built on top of it.
When you pay with Lightning, you are not making a Bitcoin transaction on the main blockchain. Instead, you are sending satoshis through a network of payment channels. The result settles on the Bitcoin blockchain eventually, but the payment itself is instant.
Lightning payments are denominated in satoshis. When a merchant’s Square terminal shows a Lightning invoice, the amount will always be in sats — not BTC.
Why was Lightning built?
Bitcoin’s main blockchain can only process about 7 transactions per second globally. For comparison, Visa handles around 24,000 per second. At scale, Bitcoin transaction fees can rise to dollars or more during busy periods.
Lightning solves this by moving most payments off the main chain. Two parties open a payment channel by locking some Bitcoin on-chain. They can then send payments back and forth instantly and cheaply within that channel — potentially thousands of transactions — and only settle the final balance on-chain when they close the channel.
How a Lightning payment actually works
When you pay a Lightning invoice at a Square terminal, here is what happens behind the scenes:
- The merchant’s Square app generates a Lightning invoice — a payment request for a specific amount of sats with an expiry time
- Your wallet (or Square’s app) finds a route through the Lightning network to the merchant
- The payment travels through one or more payment channels, with each hop collecting a tiny routing fee
- The merchant’s node confirms receipt within seconds
- Square records the payment in the merchant’s dashboard in dollars at the current exchange rate
The whole process takes one to three seconds.
What fees does Lightning charge?
Lightning fees have two components:
- Base fee — a flat fee per payment, typically 1 sat or less
- Fee rate — a percentage of the payment amount, typically 0.01% to 0.1%
For a $5 payment, total Lightning fees are usually less than one cent. This is why Square can offer 0% Bitcoin transaction fees — the underlying Lightning network fees are negligible.
Square absorbs Lightning routing fees through 2027 as part of their Bitcoin adoption program. After that, fees will depend on Square’s pricing at the time — but Lightning fees are inherently cheap by design.
Satoshis on Lightning
The Lightning Network always uses satoshis as its base unit. There is no concept of fractions of a satoshi on Lightning. This means:
- Every Lightning invoice is denominated in whole satoshis
- The minimum payment is 1 satoshi (about $0.001 at current prices)
- When Square shows you a payment of “5,190 sats”, that is exactly what was sent
Use the BitcoinUnit converter to quickly check what any sat amount is worth in dollars at the current price.
Is Lightning safe?
Lightning is considered safe for everyday payments. The main risks are:
- Channel liquidity — a node might not have enough capacity to route large payments
- Node downtime — if your wallet node is offline, you cannot receive payments (Square handles this for merchants)
- Smart contract bugs — Lightning uses Bitcoin smart contracts, which are complex software
For merchants using Square, all of this complexity is handled automatically. Square runs the Lightning infrastructure so you do not need to manage nodes or channels.