Will Lightning Network still require a confirmation from the network?

Question

I have studies the Lightning Network, and although I understand the concept, I have not understood the following: Let's assume that a network channel is opened between parties and all transactions have been completed successfully (no cancellations whatsoever). For the transaction balance to 'escape' the network channel, would a confirmation from the network (meaning the network as it is now) still be required?

As an example: John gives Nathan 0.20 BTC (transaction occurred withing the Lightning Network) - no fees:perfect - Nathan wants to send 0.20 BTC to an exchange - a confirmation from the network will be required, right?

So basically, the biggest benefit is reduced transaction time & zero fees between trusted parties, right? Confirming a transaction will still be inevitable?

Answer 1

Lightning Network (LN) payment channels are anchored on the blockchain by their owners cooperatively creating a 2-of-2 multisig address and sending funds to it. The funding usually comes from one party, but one channel owner can for example pay the other channel owner with the funding transaction by allocating the payment amount to them in the channel's initial balances. The channel anchor then remains unchanged on the blockchain until the payment channel is closed.

Payments on the LN are subsequently performed by the channel owners renegotiating their balance shares of the anchor's funds. Thus, as long as all payments are processed on LN, no on-chain action is required. When one of the two parties wants to use funds from the channel to send an on-chain transaction there are three possibilities:

1. Close: closing the channel and using the funds on-chain
2. Splice-out: cooperatively sending part of the funds out of the channel and re-committing the rest of the funds to a new channel with each other
3. Loop-out/submarine swap: paying a third party via LN to make an on-chain payment on their behalf

Answer 2

Lightning Network payment channels will need to be closed and settled on the blockchain if and only if the channel has become exhausted (i.e. one party owns all the funds in the channel) and there is no way to re-balance the funds through an alternative route of payment channels.

In your example it is possible that there exists a network (or route) of payment channels that enables Nathan to send the the 0.2 BTC to an exchange through the Lightning Network.

Answer 3

Confirmations (i.e. when the miners solve the block containing your bitcoin transaction on the blockchain) are needed to open and close LN channels. I’d still wait for about 6 confirmations before starting to use a channel.

Once the channel is open you can send or receive as many LN payments as you want within the channel’s capacity, avoiding bitcoin fees, and no need for confirmations. If you trust the LN as a technology (as you trust the Bitcoin blockchain) then the Bitcoin you receive in LN is just as good as Bitcoin on the blockchain because you trust that you can always close the channel and get the same payment settled on chain. In other words, Bitcoins on the Lightning Network are 100% backed by the blockchain.

Channel can be kept open forever to avoid paying the chain fee for closing.