Quote from: Kallisteiros on August 16, 2018, 01:39:32 PM

Hmm, now I have a question. If all transactions eventually need to be settled on the blockchain anyway, how does it affect the fees and the scalability?

There are only 2 transactions to be broadcasted: 1 when opening a channel and 1 then closing the channel.
You can do multiple (off-chain) transactions between those 2 (on-chain) transactions. You will have to pay a negligible fee (which is way smaller than the on-chain fee) for routing the payment.

This allows you to do X transactions (depending on the other party and capacity of the channel/route) for the fee of 2 * on-chain fee + X * off-chain fee (very small; currently 0)
The bigger the amount of transactions, the cheaper each tx is (on average).

Quote from: Kallisteiros on August 16, 2018, 01:39:32 PM

1. [... ]But my understanding is that HTLC requires a separate transaction output, does it not?

No. When someone decides to close the channel there will be 1 transactions (combining all previously made LN transactions) settled on chain.
The TX mostly will only have 1 output (the address you withdraw to)

Quote from: Kallisteiros on August 16, 2018, 01:39:32 PM

2. Scalability: I thought more scalability can be achieved by transacting off-chain, but if, when closing the channels, we must broadcast the same amount of on-chain transactions to spending funds from off-chain hash-locked outputs, won't it choke the blockchain all the same when we attempt to close the channels this way?

If this would be the case, yes.
But since all off-chain transactions (via HTLCs) are being summarized to one transaction (last state is being published), this is not an issue.