When I’m explaining Bitcoin’s Lightning Network to people, I like to compare it to Starbucks Gift Cards. Like Lightning, Starbucks Gift Cards are a “layer two scaling solution”:
- You “lock up” a certain amount of funds with one big “base layer” transaction.
- You can now make small, cheaper, faster transactions.
- There’s a tradeoff in fungibility (who you can spend to).
Of course if you have a dispute about your Starbucks balance you’d have to complain to customer support or some sort of law enforcement. What’s special about Lightning, in contrast, is that it’s a “trustless” layer two. If there’s a dispute about the state of a Lightning channel between two parties, they can appeal to the base Bitcoin chain as a judge of incontrovertible, cryptographic facts.