Last checked 31 October 2026. Lightning software changes quickly. Check what your wallet or payment provider actually supports. If anything here conflicts with the linked source, the source wins.
The Lightning Network is a payment system built on top of bitcoin. Two parties lock bitcoin into a shared payment channel with an on-chain transaction, then pay each other by updating the channel balance off chain. Payments can be routed across several channels, so a payer and a payee do not need a direct channel. Only opening and closing a channel touch the block chain.
Source: Joseph Poon and Thaddeus Dryja: The Bitcoin Lightning Network: scalable off-chain instant payments (PDF), Lightning BOLTs: BOLT 0: introduction and index.
- Open channelOn-chain transaction
- PayOff-chain balance updates, routed through other nodes
- Close channelOn-chain transaction settles final balances
When it helps
- Many small payments, where an on-chain fee would be large compared with the amount.
- Payments that need to settle in seconds, such as a customer at a till or online checkout.
- Customers who already pay from Lightning wallets.
Limits
| Limit | What it means for a business |
|---|---|
| Liquidity | You can only send what is on your side of your channels, and only receive up to what is on the other side. Large payments may fail to route. |
| Invoices expire | A standard Lightning invoice (BOLT 11) carries an expiry, 3600 seconds by default, and is meant to be paid once. Offers (BOLT 12) allow reusable payment codes, but wallet support varies. |
| Online keys | A Lightning node signs channel updates automatically, so its keys sit on an internet-connected machine. That is hot storage. |
| Monitoring | A node must watch the block chain for a counterparty trying to close with an old balance, or use a watchtower service that watches for it. |
| Records | Each payment needs recording for accounts and tax, like any other receipt or payment. |
Source: Joseph Poon and Thaddeus Dryja: The Bitcoin Lightning Network: scalable off-chain instant payments (PDF), Lightning BOLTs: BOLT 11: invoice protocol for Lightning payments (expiry defaults to 3600 seconds), Bitcoin Optech: Topic: offers (BOLT 12), Bitcoin Optech: Topic: watchtowers.
Custody trade-offs
| Set-up | Who holds the keys | Trade-off |
|---|---|---|
| Run your own node | You, on an online machine | Full control, but you manage channels, liquidity, backups and monitoring. |
| Hosted Lightning wallet or account | The provider | Simple, but the balance is held by the provider. Use the same checks as for any custodian. |
| Payment processor that pays out in pounds or dollars | The processor, briefly | Least bitcoin handling. You hold no bitcoin after settlement. |
Keep the treasury separate
Because Lightning keys are online, treat a Lightning balance like petty cash: an operating float with a written maximum. Sweep anything above the limit to the company's 2 of 3 multisig wallet on a set schedule. The treasury itself stays in the multisig.
Rules and tax
Receiving bitcoin over Lightning is still receiving bitcoin. The tax, invoicing and record keeping points on our page about accepting bitcoin payments apply in the same way, and a business that holds or transfers bitcoin for others may need to register or be licensed. That page covers the UK and US rules.
Read next
- Accepting bitcoin payments, options, invoicing, tax and rules.
- Fees and UTXOs, the on-chain side.
- Custody options, where the treasury should live.
Sources
Primary sources only. Each link was checked on 31 October 2026. Rules change, so confirm the current version with your adviser.
- Joseph Poon and Thaddeus DryjaThe Bitcoin Lightning Network: scalable off-chain instant payments (PDF)
- Lightning BOLTsBOLT 0: introduction and index
- Lightning BOLTsBOLT 11: invoice protocol for Lightning payments (expiry defaults to 3600 seconds)
- Bitcoin OptechTopic: offers (BOLT 12)
- Bitcoin OptechTopic: watchtowers
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