A Bitcoin address is a unique identifier that facilitates transactions. Various types of Bitcoin addresses have been introduced and utilized thanks to the many upgrades and developments that have occurred on the blockchain over the years.
One of the more recent and significant address formats to come into existence is the Lightning address, which was developed and introduced alongside the creation of the Lightning Network. In this Learn Center piece, we will primarily explore what Lightning addresses are, their benefits for Bitcoin users, and their relationship with Lightning.
What is the Lightning Network?
First introduced in 2018, the Bitcoin Lightning Network is a layer-2 protocol (L2) that is built on top of the Bitcoin blockchain. Its primary purpose is to give Bitcoin users the ability to quickly send cheap, low-value micropayments (which can include sending bitcoin and receiving bitcoin) to each other without requiring their payments to go through extensive periods of security checks, block confirmations, and settlement finality.
As a byproduct of its design, the Bitcoin L1 can only process about seven transactions per second. This has often made it challenging for users looking to engage in quick peer-to-peer transactions and, ultimately, for developers looking to build decentralized apps on Bitcoin.
The Lightning Network was developed to overcome many of these challenges and provide Bitcoin users with a way to exchange small, everyday micropayments in real-time. In essence, it serves as a Bitcoin L2 solution that facilitates instant and scalable transactions by establishing off-chain payment channels between users. This setup offers several advantages:
It enables significantly faster transactions, with finality measured in seconds rather than minutes or hours, allowing settlements to occur almost instantly.
Transaction fees are much lower compared to those on Bitcoin's base layer and have remained so due to high throughput.
There is greater potential for scalability because, in theory, the Lightning Network can process around one million transactions per second.
How do Lightning Addresses Work?
Lightning addresses were created in December 2022 as a means of streamlining and simplifying the process for users to send and receive payments to each other on the L2. While the exact format of a Lightning address varies between users, they typically look like an email address or username.
This means that a typical Lightning address could look something like this: [emailprotected].
To generate a Lightning address, users need a Lightning wallet or node. To create a Lightning wallet or node, a user must first either install a wallet application or run a Lightning node software. Once the wallet or node has been successfully set up, the user will then be prompted to create an identifier.
From there, the software of the wallet or node is then able to generate a Lightning address using both the identifier created by the user and the unique identifier that comes with the specific wallet or node in use.
Lightning Addresses vs. Other Bitcoin Address Formats
First and foremost, Lightning addresses differ from more traditional Bitcoin addresses in terms of appearance. A traditional cryptocurrency address usually consists of a long series of alphanumeric characters while a Lightning address resembles more of a username or email address. This not only makes Lightning addresses easier to remember, but also more user-friendly.
As mentioned previously, Lightning addresses are designed to only be used within the Lightning Network to instantaneously send and receive cheap, everyday micropayments. In comparison, while each traditional cryptocurrency address has its unique traits and characters, they are all generally used for on-chain transactions. Additionally, while the payments made using Lightning addresses are finalized within seconds and come with very low transaction fees, traditional on-chain transactions often take longer to be confirmed (ranging between minutes to hours) and may incur higher transaction fees.
Lightning Addresses vs. Lightning Invoices
It is also important to note that Lightning addresses differ from Lightning invoices.While both are used to accelerate and streamline payments within the Lightning Network, they both have different characteristics and serve different purposes.
As mentioned previously, Lightning addresses are unique, memorable identifiers that allow Bitcoin users to send quick micropayments to each other on the fly. Each Lightning Network user has a Lightning address that corresponds with their respective wallet/node, and because Lightning addresses are reusable, they can be employed repeatedly on multiple occasions.
Lightning invoices, on the other hand, are payment requests that a Lightning wallet or node can generate using specified payment details a user wants to receive and a unique payment hash that the wallet or node creates for the invoice. They must be signed off by the recipient and contain information such as how much needs to be paid, where the payment will be sent, a message, an expiration time, and other metadata and features.
Unlike Lightning addresses, Lighting invoices are only valid for a specified period that is often determined by the invoice creator. This is to maintain payment security. To make a payment using a Lightning invoice, users must either scan the invoice with their Lightning wallet or input the information manually. Once the invoice is recognized, the payer's wallet generates a unique payment hash that matches the one linked to the invoice. This hash ensures payment integrity and helps route the payment through the Lightning Network to the correct recipient. After the payment is initiated, it is sent through the Lightning Network's network of nodes until it reaches the intended recipient.
Conclusion
Overall, these are all the important points you need to know about Lightning addresses, their relationship with the Lightning Network, and how they compare to more traditional cryptocurrency addresses. While Lightning addresses may serve a different purpose from traditional Bitcoin addresses, they have still proven to be useful and reliable thanks to their ability to make quick, everyday transactions possible.
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