Lightning Network Growth Goes Parabolic, Up 122% in Past Month

October 14, 2021, 10:00 AM AEST - 4 days ago

A recent report by Arcane Research suggests that Bitcoin’s layer two micropayments rail, the Lightning Network, is hitting an inflection point and is at the cusp of bringing Bitcoin to billions by solving real world problems. Between August and September, personal transfers and merchant payments went up 122 percent.

Lightning payments and personal transfers from wallet users. Source: Arcane Research

Instantaneous P2P Bitcoin Payments

The Lightning Network is a layer-2 solution built on top of Bitcoin designed to overcome the intentional design limitations of the Bitcoin mainnet. Bitcoin prioritises decentralisation and security over speed, and Lightning is the solution that enables bitcoin micropayments at near-instantaneous speed. In some ways, it can be likened to Visa, which is the centralised, high-speed payment rail sitting on top of the traditional banking sector.

Visa Transactions per Second vs Bitcoin on-chain Transactions per Second vs Lightning Network. Source: Visa and Arcane Research

Lightning Soars in 2021

Public statistics such as total channel capacity and the number of nodes show that the Lightning Network is growing rapidly.

Lightning Network: Public BTC Capacity 2018 – 2021. Source: Arcane Research

In particular, growth in 2021 has been exceptional.

According to Arcane Research, much of the recent network growth can be attributed to bitcoin being rolled out as legal tender in El Salvador, in addition to Twitter launching its bitcoin tips functionality.

Future Possibilities

Looking forward, Arcane Research highlighted how Lightning could be used to “stream money” and revolutionise three main sectors – gaming, video and audio.

The possibility of streaming money can disrupt the business models we know today. Why shouldn’t you be able to pay per minute when you listen to songs on Spotify or per second when you watch a movie on Netflix? Why should you give away your credit card details to a content service if you could pay directly from your Lightning wallet without giving away any information about yourself?

Arcane Research

Aside from the benefits of being cheaper, offering greater privacy and less reliance on third parties, the market potential is enormous, as illustrated in the image below:

Source: Arcane Research

Conservative modelling based on the figures above suggests there could be upwards of 700 million users on the Lightning Network by 2030.

Source: Arcane Research

 

We now use the conservative estimate of one hour used per day on these services and that, on average, 25 percent of this time is spent on services with Lightning payments. With streaming of Lightning payments through these services, we assume one microtransaction per second. Our estimate then equals no less than 364 trillion Lightning transactions per year.

Arcane Research

If these figures prove to be correct, by 2030 there may be as many as one trillion micropayments a day on the Lightning Network. No doubt, unexpected use cases are likely to arise between now and then, suggesting that one shouldn’t overly rely on these projections. Still, the technology and possibilities are exciting enough to warrant speculation.

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