+ **Layer 2 and the Lightning Network:** There is nothing the protocol that prevents people from creating "layer 2" payment systems -- that use bitcoins, but do not record the transactions in the bitcoin blockchain.  Circle and Coinbase are examples of such systems: they have their own internal ledgers, implemented with standard database technology, that keeps track of the ownership of the bitcoins that have been deposited in their wallets.  When a user of those systems sends bitcoins to another user, the transaction is recorded only in the company's internal ledger.  

    Layer 2 networks would not be necessary if bitcoin grew slowly, which was Satoshi's stated assumption. Specifically, he believed that the traffic (number of transactions per day) would grow less than 60% per year, which probably meant the user base growing less than 25% per year.  He expected that the natural iprovemens in computer technology and internet bandwidth would let users and miners cope with that growth, without the need for a layer 2.

    However, many bitcoin holders want to see the transaction volume grow much faster than that.  They want bitcoin to become a competitor to Visa and PayPal, used by ordinary people to make all sort of internet payments -- because that is the only way to get the price to "go to the Moon", as they have been promised by the gurus.  Even ignoring all disadvantages of bitcoin compared to those traditional systems, it is obviosu that the bitcoin network, by itself, would not be able to handle such fast growth.

    However, the existing layer 2 payment systems are centralized: Coinbase and Circle are intermediaries in every transaction, and the users must trust them.  They are essentially traditional banks, except that they hold bitcoins besides dollars.  But internet payments *without* a trusted intermediary was the only purpose that bitcoin was designed and implemented for; using it through trusted third parties negates its reason to exist, its only advantage over the existing payment systems.  

    Hence the quest for a *decentralized* layer 2 bitcoin network.  But there is still no viable design for such a thing.  

    There is a thing called a Payment Channel (PC), that is basically a "mini bitcoin bank" that two bitcoin holders can create by locking some funds in a special transaction that gets recorded in the blockchain.  Then the two parties can pay each other, up to the limit of those locked funds, by simply exchanging "cheques" that draw on those funds.  

    These cheques are basically bitcoin transactions that are signed by the two parties but usually not sent to bitcoin miners, so they are not entered in the blockchain -- like an ordinary bank cheque that is signed by the sender but kept uncashed by the recipient.  Eventually the recipients can "cash out" those cheques by sending them to the miners; that closes the PC and send the unspent funds back to the two parties.  

    The Lightning Netowrk (LN) was supposed to be a collection of such two-party PCs, connecting all bitcoin users in a giant mesh.  It would be impossible to have one PC between every pair of users, so payments would have to be routed through multiple hops.  That is, when Alice wants to pay 2.00 BTC to Bob, with whom she does not have a PC, she has to find a chain of three or more people -- say, Alice-->Carol-->Dave-->Bob -- that are connected by PCs with enough balances; and then have the three payments of 2.0 BTC executed, namely Alice-->Carol, Carol-->Dave, and Dave-->Bob.  

    There are ways to ensure that the process is atomic:  all three payments are executed, or none of them is.  However, no one has figured out a viable way to find such chains of willing intermediaries -- unless there are a couple of giant "hubs", like Coinbase and Circle, and every such payment is executed as Alice-->Coinbase-->Bob or Alice-->Coinbase-->Circle-->Bob.  But this solution, again,  would be centralized... 

    And that is only *one* of the unsolved problems with the Lightning Network idea.  At this time, the honest thing to say is that the LN has not been invented yet, and there is no reason to expect that it will.