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Arcane Research sees growth for Lightning Network

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Arcane Research has released a new report on the state of the Lightning network. The signs point to growth.

The BTC Lightning network was only introduced in 2018 and can already look back on impressive progress three years later. Arcane Research now has a new report presented, which shows: in the future, the Lightning network could process not only billions, but trillions of transactions.

One criticism of BTC is that BTC is just too slow and sluggish. A new solution is needed to make BTC 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, BTC (on-chain) and the BTC Lightning Network. The Lightning network represents a second layer of the BTC blockchain. This enables fast, cheap and smooth processing of a high number of transactions.

Arcane Research sees growth for Lightning Network
Comparison of transactions per second (source: Visa and Arcane Research).

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:

In this report, we see that Lightning is already enabling people to send money instantly using internet-native global transactions. With immense opportunities for the population of emerging countries.

We believe in solving real problems for real people. And see ourselves on the cusp of making BTC accessible to billions of people using Lightning.

Elizabeth Stark, CEO of Lightning Labs

Growth of the Lightning Network

The graphic below shows that Elizabeth Stark is right that the BTC Lightning network is growing rapidly. Because this illustrates the development of the BTC capacity of the Lightning network. The exponential development of the BTC capacity in 2021 is clearly visible. While the capacity of the BTC Lightning network on January 1st, 2021 was still 1058 BTC, on September 30th it is already 2968 BTC. An increase of 181 percent in just nine months.

Arcane Research sees growth for Lightning Network
BTC capacity of the Lightning network since 2018 (source: Arcane Research).

However, the report points out that the public data of the BTC 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 BTC capacity.

Arcane Research sees growth for Lightning Network
Comparison of growth in wallet payment volume and public capacity BTC (source: Arcane Research)

The authors of the report attribute the parabolic growth in the use of the Lightning network to several possible reasons. First, that the BTC 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 BTC 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.

Arcane Research sees growth for Lightning Network
Number of wallets from 2019 to 2021 (Source: Arcane Research).

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.

Arcane Research sees growth for Lightning Network
Transaction volume in August 2021 (source: Arcane Research).

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 BTC 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 BTC 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 BTC 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.

BTC 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. The report states:

The Lightning Network and the ability to pay small amounts instantly will most likely completely change the way we pay for certain services. We can already see the first steps in this direction, but above all the alternative of “streaming” money will revolutionize many popular services in the future.

The State of Lightning – Arcane Research

It also says about the potential that the Lightning network offers for streaming services, for example:

The ability to stream money can completely change the business models we know today. Why not pay for every minute you listen to on Spotify? Or for every second you watch a movie on Netflix?

The State of Lightning – Arcane Research

In the quote above, Arcane alludes to micro-payments, cents, or Satoshi. The market for the games industry already has 3 billion users, for free video services 2 billion and for paid video services 1 billion. 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 BTC 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 BTC Lightning network

Elizabeth Stark, CEO of Lightning Labs, comments in the report on the possible future and significance of the Lightning network:

In the not too distant future, users won’t even know they are using BTC and Lightning. Like most Internet users today, they do not know that they are using the TCP / IP protocol.

People will be able to natively and seamlessly transfer money in any application on the internet, much like they can send photos today.

A lot of the most important use cases in the future will be things that would sound crazy to us today. Just like an encyclopedia that anyone can edit would sound crazy to people in the pre-Wikipedia era.

Elizabeth Stark CEO – Lightning Labs

Ray Youssef CEO of Paxful:

The Lightning Network makes it possible to scale BTC to an extent that we have never seen before. With its low fees, Lightning offers a mainstream option for small amounts. Buying a cup of coffee or making a transfer abroad with BTC is becoming a reality for the masses.

Ray Youssef CEO of Paxful

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.

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