> ## Documentation Index
> Fetch the complete documentation index at: https://docs.kaleidoswap.com/llms.txt
> Use this file to discover all available pages before exploring further.

# How It Works

> Understanding the technologies powering KaleidoSwap — Bitcoin, Lightning Network, and RGB Protocol

KaleidoSwap builds on three foundational technologies to enable fast, private, and scalable asset trading on Bitcoin.

## Bitcoin Network

Bitcoin provides the base settlement layer. All KaleidoSwap wallets are Bitcoin wallets at their core — they hold UTXOs, sign transactions, and broadcast to the Bitcoin network. On-chain transactions are used for:

* **Wallet funding** — Depositing BTC to your KaleidoSwap wallet
* **Channel opens/closes** — Anchoring Lightning channels to the blockchain
* **RGB commitments** — Embedding asset state transitions into Bitcoin transactions

<Note>
  KaleidoSwap currently supports **Signet (MutinyNet)** for testing. Bitcoin mainnet support is coming soon.
</Note>

## Lightning Network

The Lightning Network is a second-layer protocol that enables instant, low-cost payments through a network of payment channels. KaleidoSwap uses Lightning for:

* **Instant settlement** — Swaps settle in milliseconds, not blocks
* **Low fees** — Transaction costs measured in satoshis
* **RGB asset transfers** — RGB assets can ride on Lightning channels, enabling off-chain asset swaps
* **Channel-based liquidity** — Users open channels to allocate capacity for trading

Payment channels are opened between your node and a peer (or an LSP). Once open, you can send and receive BTC and RGB assets through the channel without waiting for on-chain confirmations.

## RGB Protocol

RGB is a client-validated smart contract system built on top of Bitcoin. Unlike Ethereum-style smart contracts, RGB keeps contract logic and state **off-chain** while using Bitcoin transactions as cryptographic commitments. This means:

* **Privacy** — Asset balances and transfers are not visible on the blockchain
* **Scalability** — No blockchain bloat from token transfers
* **Bitcoin security** — Asset state is anchored to Bitcoin's proof-of-work
* **Programmability** — RGB NIA fungible tokens (like USDT, XAUT) and future asset interfaces

In KaleidoSwap, RGB assets are issued, transferred, and swapped using this protocol — both on-chain and over Lightning channels.

## Lightning Service Providers (LSPs)

LSPs are nodes that provide channel liquidity and routing services. Instead of manually finding peers and managing channel capacity, you can connect to an LSP that:

* **Opens channels on demand** — Request inbound liquidity when you need it
* **Routes payments** — Ensures your transactions reach their destination
* **Supports LSPS1** — KaleidoSwap implements the Lightning Service Provider Specification for standardized channel ordering
* **Facilitates Swaps** — Enables atomic swaps between Bitcoin and RGB assets

<CardGroup cols={2}>
  <Card title="Architecture Deep Dive" icon="sitemap" href="/whats-kaleidoswap/architecture">
    See how these technologies fit together in KaleidoSwap's architecture
  </Card>

  <Card title="Glossary" icon="book" href="/whats-kaleidoswap/glossary">
    Look up terms related to Bitcoin, Lightning, RGB, and trading
  </Card>
</CardGroup>