The impressive growth of the Lightning Network comes in spite of a 44% Bitcoin price drop and a 45% decrease in search interest, the report outlines.
Seven years ago, Joseph Poon and Tadge Dryja published a seminal white paper detailing the Bitcoin Lightning Network. In the five years since its launch, the network has grown at lightning speed – 1212% in the past two years alone – a new report by Bitcoin financial services firm River outlines.
The Bitcoin Lightning Network is a layer-2 scaling solution that leverages the security of the Bitcoin blockchain to enable faster, cheaper, off-chain Bitcoin transactions. It works by establishing a network of bidirectional payment channels between users, enabling them to conduct transactions privately off-chain. (These channels can be thought of as private tunnels, or little shortcuts, between users.)
The report outlines that routed transactions on the Lightning Network have surged from 503,115 in August 2021 to 6,599,553 in August 2023 – a four-digit increase of 1,212%.
““Nobody is using Lightning” should now be a dead meme,” Sam Wouters, a research analyst at River, tweeted.
The growth of the Lightning Network comes in spite of a 44% Bitcoin price drop and a 45% decrease in search interest, the report outlines.
Speed is also up: Transactions on the Lightning Network average at 2.5 transactions per second, compared with Bitcoin’s on-chain average of 4.4 TPS.
The private architecture of the Lightning Network makes the full scale of usage difficult to accurately quantify. The report states that the upper bound of transactions could be multiples higher, if data on private, direct transactions were available.
The network is used mostly for microtransactions
The average transaction size on the Lightning Network is small – just $11.84. A transaction of this size would be unaffordable on the main Bitcoin chain due to network fees.
The report affirms: “Lightning is effectively extending Bitcoin’s utility by enabling low-value payments over the Internet.”
Primary use cases driving transaction growth are gaming, social media tipping and streaming, which accounted for 27% of growth.
Unsurprisingly, a majority of Lightning users are custodial users. As of September 2023, there were between 279k and 1.116 million monthly active Lightning users, with an estimated ratio of 1:8 non-custodial to custodial users.
How can I access the Lightning Network?
The Lightning Network is still evolving, and not all merchants or service providers accept Lightning payments yet. You can now access it through major custodial exchanges like Binance, but there are lots of other Lightning-enabled wallets you can use, including: Zap, BlueWallet, Phoenix Wallet, Electrum, Eclair Wallet, Muun Bitcoin Wallet, Wallet of Satoshi and Breez Wallet.
Here’s a step-by-step guide to accessing the Lightning Network:
1. Download and install a Bitcoin wallet that specifically mentions Lightning Network support. You can find these wallets on app stores or their respective websites.
2. Follow the instructions provided by the wallet app to set up your account. This usually involves creating a new wallet, securing it with a strong password, and backing up your wallet recovery phrase (which is essential for wallet recovery in case of device loss).
3. Once your wallet is set up, you’ll need to add some Bitcoin to it. You can do this by purchasing from a cryptocurrency exchange or receiving it from someone else. (Make sure you send the Bitcoin to your Lightning-enabled wallet address.)
4. With Bitcoin in your Lightning-enabled wallet, you can now open a payment channel on the Lightning Network. This step allows you to transact with other Lightning Network users. Most wallets provide an option to open a channel within their interface. Follow the instructions provided by your wallet to initiate the channel opening process.
5. Once your payment channel is successfully opened, you’re ready to start transacting on the Lightning Network. You can send Bitcoin to other Lightning Network users who have open channels with you, and they can send Bitcoin back to you. These transactions happen quickly, privately, and with lower fees compared to regular on-chain Bitcoin transactions.
Disclaimer: CryptoPlug does not recommend that any cryptocurrency should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.