This article originally appeared on my medium page on 2017-12-12. Update: Blockchair.com, BTC.com and Smartbit.com.au have corrected their fee rates since my article. Thank you! We’ve been getting support requests from customers inquiring why their transaction’s fee rate is not matching the parameters they set. The problem is that popular blockchain explorers don’t get the fee rate right. Let’s look at the following transaction with two P2SH-P2WSH multisig inputs and six outputs: c​d​e​e​a​0​d​6​c​3​7​a​0​4​6​d​5​b​7​e​1​3​a​7​5​b​c​0​c​9​8​4​2​4​9​3​f​4​1​d​d​5​a​9​7​d​2​4​8​d​f​4​3​5​5​2​a​d​9​e​1​5​c​8​

Let’s talk about terminology. Capacity: The number of transactions that can be processed on the network. Scalability: Capability of the network to handle a growing amount of work. Examples: A 2MB hardfork is a capacity increase but not a scalability improvement. Segregated Witness is a capacity increase and a scalability improvement. Monero has no block size limit and thus a higher capacity than Bitcoin, however its TXO pool is unpruneable, its blockchain would grow faster at same usage, and its transactions take more computational effort to validate, so it doesn’t scale as well as Bitcoin.

The Lightning network is not a sidechain. A sidechain relies on its own blockchain which is coupled to the Bitcoin blockchain via a two-way peg. On the other hand, the Lightning Network consists of native Bitcoin 2-of-2 multisig transactions. When two Lightning nodes open a payment channel, they both send funds to one multisig address and each provides the counterparty with a pre-signed exit transaction. If a party wants to resolve the payment channel, they can unilaterally add their own (the second) signature and send the transaction to the Bitcoin network for confirmation.