Bitcoin isn’t private — but its recent Taproot upgrade will help. PrivacyWeek
Lightning builds on top of multisignature transactions. To send bitcoin over the Lightning Network, a user needs to open a Lightning"channel." Once they do, they can make as many transactions as they would like off-chain – potentially thousands – without touching the main Bitcoin blockchain. This process helps Bitcoin scale because there's limited on-chain capacity.
But for now, each Lightning opening channel is a detectable on-chain transaction, which looks different from normal, simple transactions. Similarly, the final transaction a user makes when they want to close their channel shows up as a distinctly different type of transaction on the Bitcoin blockchain.
"So we'll get into nice situation that many random [transactions] out there 'could have been' [Lightning Network] channels which actually transport coins off-chain, hugely boosting privacy even for people who don't use [Lightning Network]," as Bitcoin privacy expert Chris BelcherAs we described above, Taproot Lightning transactions can be hidden on-chain.
Each of these routing nodes can see a little bit about each payment that they route. Some of the information about the payment is already shielded to a degree – like where the payment came from.