The giant Fidelity has published an optimistic report on the Lightning Network, this network for making Bitcoin transactions instantly and almost free.
What is Lightning Network?
It is a secondary network attached to the Bitcoin network which increases transactions and the confidentiality of payments.
The Lightning Network compensates for the slowness and sometimes significant costs of “on-chain” transactions. We speak in the jargon of “Layer 1” and “Layer 2.. The Layer 1 is the Bitcoin blockchain while the Layer 2 is the Lightning network.
The Bitcoin network is designed to generate a transaction block every 10 minutes. Each block can weigh up to 4 MB, about 3,000 transactions. It's little, but for purpose. It would have been very easy to increase the size of the blocks, but to the sacrifice of decentralization.
The possibility of increasing the size of the blocks has long been debated and led in 2017 to the Fork BCH (Bitcoin Cash). Without success, since a BCH is now 0.3 % of a BTC. The market has considered that unlimited blockchain would question decentralization.
Decentralization is based on the existence of many nodes which are the backbone of the Bitcoin network. They validate the transactions and ensure that the protocol is respected to the letter, in particular the limit of the 21 million BTC.
However, the number of nodes is directly proportional to their cost which depends on the memory necessary to store the blockchain (630 GB currently). Increasing the size of the blocks would increase this cost and would ruin decentralization without which bitcoin would be worth nothing.
Developers like Thaddeus Dryja therefore proposed the Lightning Network where transactions take a fraction of a second for negligible costs. All without compromising the fundamental properties of Bitcoin (decentralization).
Payment for coffee with the Lightning Network:
Some key figures
The Lightning Network was launched in 2017 to counter the supporters of the big blocks who ended up creating BCH via a hard fork.
Since then, thousands of cryptocurrencies have been launched by claiming to settle the “problem” of the low flow of Bitcoin transactions. It is obviously nothing. Security was favored and the increase in transactions withdrawn from Lightning Network.
That being said, its growth remains modest. The reason being that bitcoin is above all perceived as a reserve of value. It is indeed preferable to spend your euros or dollars first rather than your bitcoins. Not to mention the capital gains tax (which could soon disappear in the United States).
Furthermore, note that using the LN requires first to make an on-chain transaction to transfer bitcoins to a wallet specially dedicated to the Lightning network (French PhoenixBreez, Zeus, etc.). So do not hesitate to make significant recharges to hold during the significant costs of costs on the Bitcoin network.
Once this first transaction is made, transactions become instantaneous and almost free. THE Fidelity report reports 0.02 % on average for transactions between 100 and 1000 euros. It is 0.24 % for transactions between 1 and 10 euros.
“Transactions exceeding one million Satoshis (~ € 1,000) cost between $ 0.39 and $ 1.27. This fresh/transaction ratio is rare in the traditional sector »can we read.
The transaction speed also has nothing to do with those of the Bitcoin network. Voltage figures indicate that payments of less than 1000 euros are made in less than a second.
The best is to come
Voltage data show an increase of almost 200 % of payment volumes between 2023 and 2024. It is 2,400 % since 2022. Encouraging, but payments via the LN remain a drop in the Ocean of global transactions via Visa , Mastercard, etc.
Note that exchange platforms such as Coinbase and Kraken have implemented it to reduce bitcoin withdrawal costs by their customers. The decentralized social network NOST also uses the LN so that its users can send tips in the form of “zaps”. They have sent more than 3.6 million in the past six months, according to the report.
LN growth could also come from banks which currently use the SWIFT network and multiple third parties which greatly slow international transfers (compensation chamber, correspond Banks, etc.). Not to mention the costs.
The LN could become an immediate and final international settlement technology between banks. Especially if Bitcoin stands out as international reserve currency …
The report also emphasizes another interesting aspect of Lightning Network: the “Taproot Assets” protocol. Taproot assets extend LN's functionality beyond the simple transfer of bitcoins. It allows to transfer any type of tokenized assets. For example stablecoins, gold or corporate bonds, etc.
“Consequently, we are planning continuous growth in Lightning Network, despite the perception of Bitcoin as a reserve of value that discourages its expenditure”concludes Fidelity.
The Lightning Network has not finished surprising. It will certainly take off when the tax on capital gains will be abolished all over the world …
Let us end in hammering that no cryptocurrency can boast of making cheaper transactions than with the Lightning Network. Our article on the subject: Bitcoin: and in the end, there will only be one.
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