1. You post funding transaction on block chain (that locks up your money for the channel lifetime)
2. During channel lifetime (it can be a day, a month or even a year) you are free to exchange off-chain transactions with other LN users. Those TX are same BTC TX messages, however they never got posted to blockchain unless dispute occurs (in case of dispute, person who initiates premature channel closure gets punished) or channel naturally expires.
3. After channel closes - second - settlement transaction being posted to blockchain.
I think it's important to note that once the money is depleted in your channel, you will need to refund, which is another on-chain transaction (including the really steep on-chain fees). Every transaction into and out of the payment channel = on chain = huge fees.
One seemingly inescapable effect of the LN is an increased demand for bitcoin. This is because the LN network is essentially a huge distributed "HODLer."
If there are 16 million bitcoins and over six months LN absorbs 2 million, more price and fee increases, hello.
Exactly. Even with LN, the current 7 transactions/sec world wide is a joke, not even close enough to make this a viable solution. It's doomed to fail, unless they improve the onchain throughput rate. But if they do that, why do they need LN in the first place ?
I kinda agree - much larger blocks will require but not at the stage where LN tested and adopted by at least some significant portion of the community. Even on current network I have a feeling it will ease load on the network. As previous poster noted demand for BTC will rise, dragging all costs in BTC upward, but this process will be relatively slow, hopefully slow enough to upgrade block size.
Regarding refunding channel problem - there are solutions. Since you can receive funds via LN you can simply pay fiat to LN exchange to provide funds via LN and re-fund your channel, effectively buying transactionless BTC. I think for professional traders, holding LN channels opened to several exchanges will open great arbitrage opportunities.
But you not wrong - if you store BTC in cold wallet - your refill tx have to be on chain and probably will be pretty expensive.