Last week, Arcane Research released a report on the Lightning Network (LN) – a secondary layer for the Bitcoin network – reviewing its growth and expansion following a breakout 2021 in terms of volume and adoption.
Called “The State of Lightning: Volume 2,” Arcane lays out the analytic evidence behind LN’s adoption. For miners, demand to use the LN is expected to have tradeoffs in terms of future potential revenue, but is increasingly available as a cheap means of payment for all.
The LN ecosystem
Although a software protocol, many companies are building in the Lightning ecosystem and helping to scale adoption. Arcane compiled a list grouped by LN service, including implementations, liquidity services and nodes-as-service, among other categories.
Arcane measured the total adoption of the LN across both its domains: public capacity and private data. Public capacity of channels on the LN increased significantly, up 750% over the past 12 months.
Some users prefer private LN usage, which makes data difficult to track. Arcane gathered “private data” from several volunteers in the LN ecosystem to create an estimated payment volume in dollars. The below chart (Figure 3) shows a 410% increase in private volumes since the beginning of 2021.
In the below chart, the “payments in USD'' represent the privately collected data from Arcane Research. That data almost doubled the publicly represented data in some cases (Figure 7: Payments in USD).
Arcane also separated and then estimated the difference between trading and payments on the Lightning Network. Adoption of payments rose up to 480% year-over-year (YoY) in 2022.
Trading, on the other hand, peaked during the Bitcoin bull market of 2021 up almost $24 million, before collapsing back to around $5 million in volume.
One argument for the LN is its ability to bring banking and fast mobile payments to everyone. A term called “Leapfrogging” explains how access to far cheaper, more available technologies can bridge the gap to lower GDP countries. One example is countries without access to expensive infrastructure “leapfrog” landlines and moving directly to mobile phones.
In a similar manner, Arcane explains that “Hyperbitcoinization is not the only path to Lightning Network usage.” Rather, LN infrastructure paves the way to fast and cheap payments for all by meeting the client where they are at. El Salvador adopting Bitcoin to reduce intermittence payments is one such shining example.
To extend the argument further, Arcane noted remittance payments as a LN use case. Global remittance payments in 2021were $600 billion. Of that, 6.4% or $40 billion was taken as fees by the transfer companies. Take that 6.4% value against the LN’s median fee of 1 satoshi, or 0.022% per satoshi.
Overall, Arcane’s quantification of LN adoption aids justification for Bitcoin’s current roadmap. It's increasingly apparent that LN could be the standard for Bitcoin payments going forward, which will have a variety of effects on the entire Bitcoin ecosystem.