The Blockchain Payment Stack

Lightning Network

Lightning is a second-layer payment network built on top of Bitcoin. It allows two parties to transact off-chain at high speed and near-zero cost, with Bitcoin as the final settlement layer. Understanding the architecture is important before deciding whether it fits your use case.

How channels work

A Lightning channel opens with an on-chain Bitcoin transaction that locks funds in a 2-of-2 multisig address. Both parties sign a channel funding transaction. From that point, payments between them are off-chain: they exchange cryptographically signed balance updates (Hash Time-Locked Contracts, or HTLCs) that update the split of the channel balance.

Neither party needs to broadcast anything to the Bitcoin blockchain until they close the channel. The closing transaction broadcasts the final balance split to Bitcoin, and both parties receive their funds on-chain. One channel open + one channel close = two Bitcoin transactions, regardless of how many payments happened in between.

Multi-hop routing means you can pay anyone with a Lightning node without a direct channel. If Alice has a channel with Bob, and Bob has a channel with Carol, Alice can pay Carol through Bob. HTLCs ensure atomicity: either the entire route completes and every intermediate node earns their routing fee, or the payment fails and all funds return to their origin. No intermediate node can steal funds.

Capacity and adoption

The Lightning Network's total channel capacity sits above $500M in Bitcoin value (verify current figures at 1ml.com or mempool.space/lightning). The theoretical maximum throughput is over 1 million transactions per second given sufficient channel liquidity - in practice, routing reliability at scale remains a work in progress.

Real-world adoption is growing. Strike (a Lightning wallet and API service) has integrated with Shopify, Blackhawk Network, and NCR to allow Lightning payments at point of sale. Cash App integrates Lightning for peer-to-peer Bitcoin sends. Bitrefill processes a meaningful portion of its gift card sales over Lightning. El Salvador's Chivo wallet uses Lightning for domestic Bitcoin payments.

The main operational considerations for businesses: you or your payment processor must maintain channel liquidity (inbound and outbound capacity), channels can be depleted requiring rebalancing, and the smallest viable payment processors (Strike, OpenNode, Alby) abstract most of this complexity for a fee.

Inbound liquidity and Lightning Service Providers

The single operational concept Lightning merchants must understand is inbound versus outbound liquidity. Outbound liquidity is your share of a channel balance, the amount you can send. Inbound liquidity is the counterparty's share, the amount you can receive. A new channel funded entirely by you starts at 100% outbound and 0% inbound. Until customers send you payments, you cannot accept any.

Lightning Service Providers (LSPs) sell inbound liquidity directly. Voltage, Blockstream Greenlight, Galoy (Blink), and Phoenix (ACINQ) open channels to your node with their funds on their side. You pay a small fee, typically a fraction of a percent of the requested capacity, and you can receive payments immediately. BOLT 12 liquidity ads, finalized in the BOLT specification in 2024, automated discovery: a node can publish on-network advertisements offering inbound liquidity at posted prices, and your wallet selects the cheapest provider.

2024-2026 protocol updates

Watchtowers and channel jamming

Two operational considerations for non-custodial Lightning users. First, watchtowers. If your channel counterparty broadcasts an outdated commitment transaction trying to claim funds that no longer belong to them, the protocol gives you a 144-block window (about 24 hours, the BOLT 2 default) to broadcast a penalty transaction that takes their entire balance. If your node is offline during that window, you lose. Watchtowers are third-party services that monitor the chain on your behalf and broadcast the penalty if needed. The Eye of Satoshi and the built-in watchtower implementations in LND and Core Lightning are the common options.

Second, channel jamming. An attacker can route payments through your channels that intentionally fail at the last hop, locking up your liquidity for the HTLC timeout window. No funds are stolen, but your channel cannot route legitimate payments while jammed. Mitigations using upfront fees were proposed in BOLT discussions through 2024 and 2025; production deployment is still partial as of early 2026. For most merchants this is not an immediate operational threat, but it is worth knowing about as the network scales.

Hosted vs self-hosted Lightning

For merchants who want Lightning acceptance without running a node, hosted Lightning is the practical option. Voltage runs hosted enterprise nodes. Galoy's Blink Pro and Phoenix's Lightning-as-a-Service handle the node operation, channel management, and liquidity sourcing for a fee. BTCPay Server with LNbits gives you self-hosted Lightning with simpler operational tooling than running raw LND. The right choice depends on transaction volume: under $10,000 per month in Lightning volume, hosted is usually cheaper than running a node. Above that, self-hosted starts to make sense.

Solana Pay

Solana Pay is an open payment protocol built on the Solana blockchain. It is not a payment processor company - it is a specification for how Solana-based payments are initiated, encoded in QR codes, and confirmed. Any wallet that implements the Solana Pay standard can receive payments from any other compliant wallet.

The technical case for Solana

Solana's block time is 400ms. The published theoretical throughput is 65,000+ TPS; observed practical throughput in 2024-2025 typically ran 1,000 to 4,000 TPS, with peaks higher during memecoin and airdrop activity, still far above any legacy payment network. Transaction cost averages $0.00025, making it economically viable for sub-$1 transactions where card interchange would be the entire value of the transaction. The Firedancer validator client (Jump Crypto, mainnet ramp 2024-2025) is targeting further throughput gains with a parallel C++ implementation.

Solana Pay works primarily with USDC and USDT on Solana, though it supports SOL and any SPL token. For merchant use, USDC-on-Solana is the standard: the customer pays, the merchant receives USDC in their wallet address, and can convert to fiat via exchange or hold the stablecoin.

Shopify integration

Solana Pay's native Shopify integration allows merchants to add a Solana Pay option to their checkout. At checkout, the customer sees a QR code. They scan it with a Solana wallet (Phantom, Backpack, Solflare), approve the payment, and Shopify marks the order as paid once the transaction confirms - typically within one second.

The merchant receives USDC or SOL directly to their configured wallet address. There is no custodian holding funds between customer payment and merchant receipt. Merchant responsibility: managing the wallet, handling fiat conversion if needed, and accounting for the USDC receipt as income.

Stablecoins as Payment Rails

For most businesses evaluating blockchain payments, stablecoins are the practical answer to crypto volatility. You receive value in a dollar-pegged token, hold it or convert it, and avoid the price risk of holding Bitcoin or Ether. The three stablecoins relevant to payment infrastructure are USDC, PYUSD, and USDT.

USDC (Circle)

USDC is issued by Circle and has become the de facto institutional stablecoin. Circle publishes monthly attestations of its dollar reserves by a Big Four accounting firm. Every USDC is backed 1:1 by cash and short-dated US Treasuries held in segregated accounts. Circle received its EMI (Electronic Money Institution) license from France's ACPR on July 1, 2024, becoming the first major stablecoin issuer to operate as a regulated EMT under MiCA across the EU.

USDC runs on 15+ blockchains including Ethereum, Solana, Arbitrum, Base, Polygon, Avalanche, and Optimism. Circle reported $75.3B in supply and $11.9 trillion in quarterly transaction volume as of late 2024, a 247% year-over-year increase. For context, Visa's annual network volume is approximately $15 trillion. Supply has fluctuated through 2025 in the $50-65B range as institutional flows shifted between USDC, PYUSD, and USDT; verify current supply at circle.com or coingecko.com before referencing in business decisions.

Circle's CCTP (Cross-Chain Transfer Protocol) is the infrastructure that allows USDC to move natively between chains without bridging risk. Instead of locking USDC on Ethereum and minting wrapped tokens on Arbitrum (which introduces smart contract custody risk), CCTP burns USDC on the source chain and mints new USDC on the destination. The minted tokens are backed by the same Circle reserves as the burned tokens, no intermediary lock-up.

CCTP V2, launched March 2025, adds a Fast Transfer mode that reduces cross-chain finality from minutes to roughly 8-20 seconds for supported routes. V2 also adds hooks (programmable post-transfer actions) for dApp integrators. The original V1 remains available for routes V2 has not yet enabled. For payment applications, CCTP eliminates the bridging risk that has cost users billions in hacks of lock-and-mint bridges.

PYUSD (PayPal)

PYUSD launched in August 2023 on Ethereum, then expanded to Solana in May 2024. PayPal's push to Solana was explicit: Ethereum gas fees had made PYUSD uneconomical for small payments, and Solana's sub-cent transaction economics fit the use case. Supply has fluctuated since launch in the few-hundred-million to low-billions range, with Solana now the primary chain. Treat the live figure as the authoritative number; verify at coingecko.com or defillama.com before relying on a static value.

PYUSD is issued by Paxos Trust Company on PayPal's behalf, with monthly attestations. For businesses already on PayPal's ecosystem, PYUSD integration is straightforward. For others, USDC's wider ecosystem support makes it the default choice.

USDT (Tether)

USDT is the largest stablecoin, with supply above $155 billion as of early 2026, widely used in trading and cross-border OTC markets, and notably dominant on the Tron network for retail dollar-equivalent transfers across emerging-market corridors. For payment applications, USDT's advantage is liquidity: it is accepted on virtually every exchange and supported by every major crypto payment processor.

The consideration for business use: Tether's reserve disclosures have historically been less transparent than Circle's. Tether has never completed a full public audit by a major accounting firm. Attestations have improved, but institutional due diligence typically lands on USDC for business payment applications where regulatory clarity matters.

Crypto Payment Processors

Between self-hosting and using a major custodian, several processors have built crypto payment infrastructure for merchants. The choice between them is primarily about custody, fees, and technical complexity.

Protocol Comparison

No single blockchain payment protocol dominates all use cases. The right choice depends on your transaction size distribution, geographic reach, customer technical capability, and compliance posture.

Note: Ethereum mainnet costs are highly variable based on network congestion. L2 networks (Base, Arbitrum, Optimism) offer Ethereum security with lower fees.

Choosing Your Stack

Module 6 will walk through integration for each of these options. But here is the decision logic in short form:

• If your customers are technically comfortable with crypto and you want zero platform fees: BTCPay Server + Lightning.
• If you run an ecommerce store and want a turnkey stablecoin checkout: Coinbase Commerce or Solana Pay via Shopify plugin.
• If you need fiat settlement and want managed compliance: BitPay or Coinbase Commerce with fiat conversion.
• If you are doing cross-border B2B payments over $10K and want to eliminate correspondent bank fees: USDC on Solana or Base with Circle's API.
• If you are an enterprise evaluating crypto as a treasury or settlement layer: Module 4 covers the institutional infrastructure being built for you specifically.