Report: Arcane Crypto Publishes Bitcoin Lightning Network Research
Arcane Crypto and Opennode have teamed up to publish a Bitcoin Lightning Network research paper detailing the network’s growth, adoption, and plateaus.
- In collaboration with bitcoin-Lightning payment processor Opennode, Arcane crypto has released “The State of Lightning: Bitcoin As A Payment Network” for its second Lightning Network research volume.
- Lightning has grown exponentially with companies like Cash App and the nation-state of El Salvador onboarding millions of users in a short period of time. Services resulting from this level of adoption drive channel and capacity growth, leaving plateaus in their wake.
- While nodes continue to rise as new users join the network, the most interesting statistics lie in the crevices of transaction volume and quantity.
Arcane, a leading cryptocurrency market analytics company, has partnered with Opennode, a Lightning Network payment processor, and recently released “The State of Lightning: Bitcoin As A Payment Network”. This is the second volume of published data detailing the adoption of Bitcoin’s Layer 2 Lightning Network powered by Opennode. Bitcoin Magazine previous coverage can be found here.
Arcane notes the divergence of the US dollar from a traditional characteristic of value, scarcity. The chart below hints at a cautionary tale for the future of the US Dollar, as rapid currency printing has unabashedly increased supply. However, Bitcoin hits its programmatic inflation curve and aligns perfectly with ideas of a digital form of gold.
Arcane notes that for Bitcoin to succeed, it must achieve both liquidity and scale. Arcane draws a parallel between email and money. Email was able to revolutionize a communication network on the internet and Bitcoin has the potential to revolutionize payment transactions on the same network.
Email served as a distribution point and was sent to email service providers such as Gmail, Outlook or Yahoo. Email was the communication protocol while the other companies served as intermediary service providers.
Similarly, bitcoin can be seen as a money dispensing point. Service providers can then tap into the protocol and create their own companies such as: CashApp, Bitfinex, Paxful, OkCoin, Kraken, and Twitter – all of which have integrated Lightning – to act as intermediaries that transfer bitcoin’s value.
This revolutionary monetary system becomes more evident when considering the level of adoption already experienced by Lightning, given that the idea was released in 2015.
Flash payments have evolved over time for a multitude of uses and transaction data to date shows that 48% are private payments, 32% are deposits and withdrawals, 19% are merchant payments and cards -gifts, and 1% of “others” are small transactions.
The intriguing part of the “other” 1% of payment volume is that even though it only represented a small portion of the total value on the network, these transactions represented more than half of the total transactions. Transactions are usually micro-rewards from services such as online games that pay users in satoshis.
Public capacity, the amount of BTC held on Lightning Chains, saw a 200% increase year over year (YoY). Between April and September 2021, an exponential annualized growth rate of 715% was observed. An expected curve in adoption rates would occur, causing a plateau, which we saw as 2022 progressed.
The jumps in adoption from last year can be attributed to the fact that El Salvador adopted bitcoin by leveraging the Lightning Network, creating a drastic and immediate need for a large amount of Lightning channels. Twitter embracing the bitcoin switch can also be attributed to the strong growth of the Lightning Network. Large-scale adoptions like these don’t happen every day, so some curve is expected.
As channel capacity has grown, so has trading volume. The number of monthly transactions doubled year-on-year and the volume of transactions saw a 410% increase year-on-year. The graph below gives a more detailed view of the volume and quantity of transactions since 2020.
The growth of the Lightning Network is evident when looking at the number of nodes joining the network. However, this growth is not accurately represented by the number of users joining the network, as those already using the protocol increasingly turn to it. In February 2022, the year-to-date statistics saw increases in USD payments of 410%, public capacity in BTC of 218%, public capacity in USD of 171%, as well as new nodes and channels of 127%.
As the Bitcoin ecosystem continues to grow, more companies are expected to integrate the Lightning Network as a means of transferring value. With every intermediary that seems to be part of this emerging system, new nodes and channels will be added to the Lightning Network’s public capacity over time.
Arcane cautioned against using public metrics to determine network growth rates because it disregards private channels, invisible nodes, and has no discernment about actual network usage.
As depicted below, Cash App onboarded many people into the ecosystem without users even knowing they were on the Lightning Network.
With the Lightning Network experiencing a near-term growth plateau through 2022, many companies are likely considering how to be the next to implement it on their platform.
As Strike CEO Jack Mallers explained during his speech at the Bitcoin 2022 conference, hyper-bitcoinization is not necessary for the Lightning Network to grow exponentially. As services begin to realize the superior payment methods provided by Lightning, users won’t even need to transact in bitcoin to use Lightning. As bullish as this report is, we wonder how bullish next year’s report will be.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.