Arcane Research has released a new report on the state of the Lightning network. The signs point to growth.
The Bitcoin Lightning network was only introduced in 2018 and can already look back on impressive progress three years later. Arcane Research has a new report presented, the exhibits: the future Lightning network could not only handle billions, but trillions of transactions.
One criticism of Bitcoin is that Bitcoin is just too slow and sluggish. A new solution is needed to make Bitcoin a real alternative to traditional payment systems for millions and billions of users. And this solution is called: Lightning Network. The following graphic compares the possible transaction volumes of Visa, Bitcoin (on-chain) and the Bitcoin Lightning Network. The Lightning network represents a second layer of the Bitcoin blockchain. This enables fast, cheap and smooth processing of a high number of transactions.
In the preface to the report, Elizabeth Stark, CEO of Lightning Labs, gives an outlook on the possibilities of the Lightning Network and the path ahead.
Growth of the Lightning Network
The graphic below shows that Elizabeth Stark is right that the Bitcoin Lightning network is growing rapidly. Because this illustrates the development of the Bitcoin capacity of the Lightning network. The exponential development of the Bitcoin capacity in 2021 is clearly visible. While the capacity of the Bitcoin Lightning network on January 1st, 2021 was still 1058 Bitcoin, on September 30th it is already 2968 Bitcoin. An increase of 181 percent in just nine months.
However, the report points out that the public data of the Bitcoin Lightning network does not reflect the real user growth of the Lightning network. Because the wallet payment volume has grown much faster than the growth of the Lightning network every month. The capacity of the Lightning network has increased by 10 percent per month since the beginning of 2021, but the wallet payment volume has increased twice as much, by a full 20 percent per month. This gap between the two growth rates widened again from September 2021. Because from September, the wallet payment volume grew three times as fast as the Bitcoin capacity.
The authors of the report attribute the parabolic growth in the use of the Lightning network to several possible reasons. First, that the Bitcoin legalization in El Salvador suddenly added 2.7 million new users to the Lightning network. Second, that other companies or market players are also opening up to the Lightning network globally. For example the trading platform Paxful or Twitter. The social media company introduced a kind of virtual tip function in September that uses the Bitcoin Lightning network. As a result, the Lightning Network could – theoretically – gain all 186 million Twitter users as users.
Lightning wallets – more than ever before
The report estimates the number of active Lightning wallets. The number of wallets is shown in the graphic below. By August 2021 the number will be 160,000.
It is also interesting how many US dollars are already being sent over the Lightning network. The US dollar value of the Lightning transactions is said to have been just under 5 million US dollars in August 2021. The majority of the transaction volume is spread over the category “Payments for Goods and Services” – payments for goods or services.
Just the beginning
The authors of the report point out that the Lightning network is still only at the beginning of its development. The combination of Bitcoin and the Lightning Network offers billions of people access to a functioning monetary system.
The report refers to El Salvador as an example. In the Central American country, the authors expect that 90 percent of the Salvadoran population will have access to the Lightning network by 2025. This growth will also be reflected in the monthly volumes. The authors forecast a monthly volume value of 650 million US dollars and a monthly number of transactions of 20 million on the Lightning network by 2030.
Arcane Research now assumes that if El Salvador’s decision to accept Bitcoin as legal tender turns out to be fruitful, many other countries will follow suit. Arcade has set up a kind of “hot favorites list”. This includes countries that are most likely to emulate El Salvador’s decision.
The “hot list” includes countries in which the population does not have access to a bank account and where their own national currency is highly dependent on the US dollar. 650 million people live in these countries. If only 10 percent of these countries introduce Bitcoin as legal tender by 2030, then 50 million new users for the Lightning network should be added, according to Arcane. By 2030, these 50 million people should be responsible for a payment volume of 17 billion US dollars and a number of Lightning transactions of 1.2 billion.
Bitcoin Lightning can completely change the service industry
But the authors point out that the Lightning network does not only have a lot of potential in poorer countries. One sector in particular offers the Lightning network the opportunity to attract billions of users: the service sector.
Arcane alludes to micro-payments, cents, or Satoshi. The market for the games industry already has 3 billion users, 2 billion for free video services and 1 billion for paid video services. There is a market of 500 million users for music streaming providers such as Spotify or Apple Music.
The authors of the report assume that the Lightning network will be of enormous importance for the games, video streaming and music streaming industries. According to the authors, a total of 700 million users will be making payments using the Bitcoin Lightning network by 2030. Based on this, the authors assume that by the end of the 20s, users from the above-mentioned industries alone will be responsible for a total of 364 trillion Lightning transactions per year.
Opinions on the future of the Bitcoin Lightning network
Elizabeth Stark, CEO of Lightning Labs, comments in the report on the possible future and significance of the Lightning network.
The developments of the Lightning network since 2018 can give reason for optimism. If historical growth continues, Lightning could have billions of users and even process trillions of transactions in a few years.