Lightning in a bottle: liquidity on the Lightning network

The Lightning Network addresses several of Bitcoin’s issues, most importantly the inability of Bitcoin’s base layer to process a large number of transactions efficiently. Lightning transactions are instant and trustless, though they lack the base layer’s settlement assurances. Despite this speed and the reduction in fees caused by moving transactions off-chain, managing liquidity on Lightning is difficult due to the way the network is structured.

Lightning allows two parties to lock up on-chain funds in a payment channel, at which point the parties can transact freely without committing payments to the base chain. Each party can send a net value of up to the initial amount locked on their side of the channel.