What Bitcoin scaling solution uses off-chain payment channels?

The Lightning Network is the Bitcoin scaling solution that uses off-chain payment channels.

It was proposed in a 2015 white paper by Joseph Poon and Thaddeus Dryja. Instead of recording every small payment directly on Bitcoin’s base layer, users lock funds into a channel with an on-chain funding transaction, then update the balance between them off-chain.

Channels can connect through intermediary nodes, allowing payments to travel across a network without every participant opening a direct channel. When a channel closes, its final balance is settled on the Bitcoin blockchain. This reduces fees, confirmation delays, and the amount of data placed on-chain, although opening and closing channels still require blockchain transactions.

A common mix-up is confusing Lightning with SegWit or Taproot. SegWit and Taproot are Bitcoin protocol upgrades; Lightning is a separate second-layer payment network that benefits from Bitcoin’s scripting and transaction features. Bitcoin Cash, meanwhile, is a separate cryptocurrency created through a 2017 fork.