Everything You Need to Know About Lightning and BOLT12

As we move into 2026, we’re publishing a series of posts designed to introduce new users to the Lightning Network—Bitcoin’s Layer-2 scaling protocol. These posts explain Lightning’s high-level functionality, the rationale behind its design choices, and how it fits into OCEAN’s core mission: building a decentralized future for Bitcoin mining.

Bitcoin has revolutionized finance by enabling decentralized, censorship-resistant value transfer. But as adoption has grown, so have its limitations. With blocks produced roughly every 10 minutes and limited block space, on-chain transactions can become slow and expensive during periods of high demand.

The Lightning Network addresses these constraints by enabling instant, low-cost Bitcoin payments while preserving the security guarantees of the base layer. In this post, we’ll cover how Lightning works, why it matters, and how BOLT12 offers unlock powerful new payment capabilities. We’ll also introduce OCEAN’s Lightning payout integration, making it easier for miners to get paid instantly and efficiently.

Why Bitcoin Needs Lightning

Bitcoin’s blockchain functions as a global, immutable ledger. Every transaction is verified, recorded, and secured by proof-of-work—an unmatched security model. However, this design naturally limits throughput.

When demand spikes:

Fees rise sharply

Confirmation times increase

Micropayments become impractical

This makes Bitcoin less suitable for everyday payments like tipping, subscriptions, or point-of-sale transactions.

The Lightning Network solves this by moving the majority of transactions off-chain, while still settling securely on Bitcoin when needed. Think of it as opening a tab: you transact freely, then settle the final balance later on-chain.

How the Lightning Network Works

At its core, Lightning is built on payment channels—secure, bilateral agreements between two parties.

1. Opening a Channel

Two users lock Bitcoin into a shared, on-chain multisig address. This transaction is recorded on the Bitcoin blockchain.

2. Off-Chain Payments

Within the channel, participants exchange funds instantly by updating balance states. These updates are enforced using Hashed Time-Locked Contracts (HTLCs) and do not touch the blockchain.

3. Network Routing

If two users don’t share a direct channel, payments are routed through intermediary nodes. Lightning functions as a mesh network, with nodes forwarding payments for small fees.

4. Channel Closure

When the channel is closed, the final balances are settled on-chain. In case of disputes, Bitcoin enforces the latest valid state.

The result is near-instant settlement, minimal fees, and no burden on the base layer for every transaction.

Advantages of the Lightning Network

Lightning dramatically expands what Bitcoin can do:

Scalability: Millions of transactions per second off-chain

Low Fees: Often fractions of a cent—ideal for microtransactions

Instant Settlement: No waiting for confirmations

Improved Privacy: Payments aren’t broadcast to the public mempool

New Use Cases: Streaming payments, tipping, machine-to-machine commerce

Trade-offs to Consider

Channels require on-chain transactions to open

Liquidity management matters

Routing can fail if liquidity is constrained

That said, wallets and tooling have improved rapidly, abstracting much of this complexity away from users.

Real-World Lightning Use Cases

Lightning is already powering real adoption:

Micropayments: Podcasting (Fountain), pay-per-article content

Retail Payments: Instant in-store Bitcoin acceptance

Remittances: Fast, low-fee cross-border transfers

Machine Payments: EV charging, IoT data markets

By mid-2025, Lightning surpassed 11,000 nodes, tens of thousands of channels, and billions in routed value—particularly strong in emerging markets.

From BOLT11 to BOLT12: Why Offers Matter

BOLT11: The Original Invoice Standard

BOLT11 invoices are single-use payment requests containing:

Amount

Destination node

Payment hash

Description

They work—but they must be regenerated for every payment.

Limitations of BOLT11

One-time use only

Poor fit for recurring payments

Operational overhead for merchants

Potential privacy leakage if mismanaged

These limitations created the need for a more flexible system.

Introducing BOLT12 Offers

BOLT12 represents a major upgrade to Lightning payments through the introduction of offers.

Unlike BOLT11 invoices, BOLT12 offers are:

Static

Reusable

Sharable publicly

They function like a Lightning payment address—similar to an email address for money.

A single BOLT12 offer can be:

Posted on a website

Embedded in a profile

Used repeatedly for incoming payments

This is a major improvement for:

Subscriptions

Donations

Merchant payments

Mining payouts

BOLT12 also improves receiver privacy, allowing nodes to reveal only what’s necessary per payment request.

Security Model of BOLT12

BOLT12 uses:

Tagged hashes

Cryptographic signatures

Spec-defined verification steps

This ensures invoice requests can’t be tampered with and provides security guarantees comparable to on-chain proofs—making BOLT12 suitable even for high-value or recurring transfers.

For deeper exploration, see the BOLT12 User Stories in the Lightning spec.

OCEAN’s Lightning Payout Integration

At OCEAN, we’re making Lightning payouts simple, secure, and miner-friendly by using BOLT12 offers linked to your on-chain Bitcoin address.

How It Works

Generate a BOLT12 offer

Supported wallets include:

Core Lightning (experimental)

Alby

Phoenix

Paste the offer into your OCEAN dashboard (My Stats page), along with the current block height.

OCEAN generates an unsigned message linking your on-chain address to the offer.

Sign the message using your Bitcoin wallet or signing device.

Submit the signature to confirm.

This follows BIP-137, BIP-322, or Electrum’s signature format.

⚠️ Important: Your Lightning node must have inbound liquidity. If liquidity is unavailable, payouts will revert to on-chain once thresholds are reached.

Why This Matters

With Lightning payouts:

Miners receive rewards instantly

Fees are drastically reduced

No waiting for confirmations

This integration aligns directly with OCEAN’s mission to strengthen Bitcoin’s decentralization—at both the mining and payment layers.

Learn More

Lightning setup: https://ocean.xyz/docs/lightning

BOLT12 wallets: Alby, Phoenix

Advanced implementations: Core Lightning