The below is an excerpt from a recent edition of Bitcoin Magazine Pro, Bitcoin Magazine’s premium markets newsletter. To be among the first to receive these insights and other on-chain bitcoin market analysis straight to your inbox, subscribe now.
The Lightning Network, a node-based payment protocol designed to solve Bitcoin’s solvability problem, has shattered all expectations of success with its rise of over 1200% in the last two years.
The Lightning Network is a “layer 2” decentralized network based upon Bitcoin’s blockchain, designed to solve the scalability problem in bitcoin transactions. Essentially, Bitcoin can function as a trustless and decentralized global currency because of its proof-of-work system that can verify all operations on the blockchain, one block at a time. However, as Bitcoin has exploded in popularity and value over the years of its existence, the number of transactions that need verification has risen logarithmically, into the tens of millions per month. And every one of these transactions requires computing power to be verified.
The tremendous growth of Bitcoin usage and adoption has come with a double-edged sword, that there are increasing millions of people who want to try out Bitcoin to purchase their coffee, a cab service, or any of the other million everyday transactions that make up normal life. But the transaction fees necessary to validate these tiny purchases have only increased, to the extent that the cost of spending the money would outweigh the actual expenditure dozens of times over. This problem has been anticipated since the early days, and since 2015-2016, new innovation has been creating the Lightning Network.
A system of Lightning nodes operating on top of Bitcoin can handle huge numbers of microtransactions in a decentralized fashion without directly updating the blockchain, and these trades are resolved en masse in a minimal number of on-chain transactions. Usage is near-instantaneous, and the efficiency improvement is a game changer. Since Lightning made its first public debut in 2019, it has only grown in popularity over the past few years. What has been unexpected, however, has been the extreme growth potential in this protocol even years after its launch.
New data from River, a firm specializing in financial services and Bitcoin technology, has shown that Lightning Network transactions have risen by a mind-boggling figure, more than 1,200%, in the last two years alone. River’s report, published on October 12, set out to disprove myths about the Lightning Network. Far from stagnating or plateauing, the active usage of the protocol has shot up tremendously starting in 2021. River estimated that there are anywhere between 279k and 1.1 million users per month, a wide figure made complicated by the difficulty at measuring private transactions and those between two participants.
Furthermore, even as their data has suggested that the number of active nodes has plateaued since mid-2022, the Network’s actual capacity to process bitcoins has been steadily increasing all the same. River draws attention to several subtler factors of Lightning Network success in their study: for example, the fact that Bitcoin’s highest prices ever took place in 2021. During the period observed, they claim that “Google search volume for Bitcoin decreased by 45%, and the price decreased by 44%”, and yet still the Lightning Network has grown out of all proportion in the same time period! This suggests that more experienced users, those who remain invested in Bitcoin’s revolutionary economic model despite its setbacks, have been a key force in adopting this protocol.
Additionally, the report analyzed the types of transactions that 27% of their measured transactions were conducted in some unexpected “growth areas”, such as tipping on social media and streamers and also the gaming industry in general. Indeed, on the same day as this report’s release, gaming firm THNDR began a limited rollout of its new API, Clinch. It uses the Lightning Network to enable gamers worldwide a novel new access to the gambling industry: a series of games with Lightning-based wagers that can be played anywhere, instantaneously, for no fees with bets as low as one satoshi. Considering that increasing numbers of Lightning users have taken to such games in recent years, a success here could break into a multibillion dollar industry.
Bitcoin Magazine Pro is a reader-supported publication. To receive new posts and support our work, consider becoming a free or paid subscriber.
This is not even the only new application for the Lightning Network launched in mid-October 2023. Blockstream, a Bitcoin infrastructure company, also announced Greenlight, a solution to offer secure self-custody options for Lightning transactions. Project lead Christian Decker claimed that Greenlight is “designed to let developers integrate Lightning in their apps seamlessly while granting users full exclusive control over their funds,” ensuring that the convenience of Lightning microtransactions is preserved even as a host of new security measures are used. As Blockstream is attempting to attract both private and institutional customers with this “Lightning-as-a-Service” model, it has even offered developers free access to on-demand nodes to develop applications on this protocol.
In other words, the growth of the Lightning Network in nearly all metrics is clearly visible all around. Despite a bear market for Bitcoin and the plateauing of new Lightning Network nodes, this revolutionary protocol has grown tremendously. Counting more users and a substantial portion of all bitcoin transactions, the Lightning Network and its community are pushing forward at high speeds. Most importantly, as evidenced by the new applications that are released at a constant rate, Lightning enjoys an active and dynamic ecosystem of new developers to constantly expand on the project. It is this metric, more than any other, that can guarantee success. Bitcoin has built up its incredible reputation and staying power, the ability to bounce back from market downturns and government crackdowns, through the innovation of its worldwide community. And, as the numbers will plainly tell you, that community loves the Lightning Network.
