Are bitcoins on Lightning Network different from those on the blockchain?
What differences are there between the BTCs commonly used on-chain and those used on LN?
A few points differ between bitcoins put on Lightning Network and those held on regular wallets that operate directly on the blockchain.
It must be said that all bitcoins are always physically located on the blockchain, as information recorded on that file consisting of a chain of blocks that we usually call blockchain.
Differences between BTC on LN and those stored on on-chain addresses
BTCs on LN are actually on that file as well, just like everyone else, but that doesn’t mean at all that they can be used in the same way.
Bitcoins put on LN are identical to those stored on on-chain addresses, but their usage changes: the difference is just there.
To use bitcoins on Lightning Network, you have to put them there.
The total number of bitcoins tied up on LN is called “Network Capacity,” and today, there are a total of about 2,400, worth around $110 million.
In total, those who have opened their own channel on Lightning Network to use it to send and receive bitcoin have moved 2,400 BTC from their on-chain wallets to their LN channels.
Currently, there are only a total of 2,400 bitcoins that can be used worldwide via Lightning Network.
The main difference between the BTC left on the on-chain wallets, and those moved to LN channels is that the latter can only be used on LN channels or sent to other LN channels.
However, any channel open on Lightning Network can be closed if you want, and in that case, the bitcoins left on the channel are made available again to the on-chain wallet of the owner of the closed channel.
How a Lightning Network channel works
Every LN channel needs a supporting on-chain address to store the BTC intended to be used on the channel, but only by closing the channel, can they return to the address with which it was created in the channel.
Physically, they are always kept by the on-chain address used to create the LN channel, but they are immobilized. So they can only be used on the channel or unlocked by closing the channel.
The opening and closing of an LN channel are free and can be done at any time, but both operations require the registration of a transaction on the blockchain. This transaction is not immediate, as those on LN are, and has the classic fees of an on-chain transaction.
The only thing you can do both with BTC stored on on-chain addresses and with those immobilized on LN channels is to send them to another address.
In the case of traditional on-chain addresses, they can only be sent to other on-chain addresses or intended to create their own LN channel. That is, they cannot be sent directly from an on-chain address to a third-party LN channel.
Differences between LN transactions
On the other hand, in the case of bitcoins immobilized on an LN channel, they can only be sent to another LN channel or unlocked by closing the channel.
Although bitcoins immobilized on an LN channel are not physically moved from the on-chain address, even if they are sent to another LN channel, at the time of channel closure, only the bitcoins remaining on the channel will be unlocked net of all transactions made by the channel itself, both incoming and outgoing.
In other words, if a Lightning Network channel performs BTC sending or receiving operations, the BTC unlocked at closing will easily differ from the BTC immobilized at the time the channel was created.
However, the biggest difference lies in the transactions: immediate and extremely cheap on Lightning Network, slow and expensive on the blockchain.