The Lightning Network is a "layer two" system built on top of Bitcoin. It lets people send bitcoin instantly and for tiny fees, without recording every payment on the blockchain.
The problem it solves
Bitcoin's base layer can handle only a limited number of transactions per second, and each one waits for a confirmation. That is fine for settling value, but awkward for buying a coffee. Lightning moves small, frequent payments off-chain and only uses the blockchain to open and close accounts.
Channels
Two people open a payment channel by locking bitcoin in a shared multisig output on-chain. After that, they can pay each other back and forth as often as they like by signing updated balances. Only the final balance is written to the blockchain when the channel closes.
A network of channels
You do not need a channel with everyone. Payments can hop across several channels: Alice pays Bob through Carol. Cryptographic hash locks (HTLCs) make sure each hop either completes in full or not at all, so intermediate nodes cannot steal the money. Routing nodes can earn small fees for forwarding payments.
Benefits and trade-offs
Benefits: payments settle in seconds, fees can be a fraction of a satoshi, and payments are more private than on-chain transactions.
Trade-offs: channels must stay online or be watched to prevent cheating. Large payments may lack a route with enough capacity. And running your own Lightning node takes more effort than an ordinary wallet, though many apps now handle this for you.
Lightning implementations launched on mainnet in 2018. It is used for tips, remittances and everyday payments, and El Salvador's government-backed Chivo wallet, launched in 2021, supported it.