The Lightning Network’s viability has seen increased debate this past year. Introduced in 2015, the Lightning Network was heralded by many as one of the final steps toward hyperbitcoinization. However, sobering discourse on Twitter cleared the frothy hype around Lightning in 2022, forcing the community to reflect on the progress made thus far.
What was supposed to usher in Bitcoin payments – from social media micro-consumption and tolls for private roadways to purchasing coffee at your local cafe – has not. More than four years after the Layer 2 network’s first transaction, how much is Lightning actually being used for payments?
The average bitcoiner uses Bitcoin for investing or saving and traditional fiat payment rails for spending. This may be partially due to Gresham’s Law, where rational consumers spend ‘bad money’ and save ‘good money.’ Yet mainnet Bitcoin settlement volume is still much greater than Lightning. It stands to reason that Lightning is currently less preferable than mainnet Bitcoin payments.
In developed countries, citizens benefit from highly integrated and sophisticated fiat payment networks. Generally speaking, tapping a fiat payment device remains the most convenient way to purchase goods or services in highly developed countries. Lightning is far from as easy as quickly tapping to pay and walking away.
For example, most Lightning wallets do not currently allow a generic receiving address for receiving any amount of L-BTC at any point in time, similar to a static Bitcoin receiving address. When a recipient manages to share an invoice with the sender, routing errors frequently occur – far more frequently than a mainnet Bitcoin payment.
The seemingly best way to use Lightning is by using the Muun wallet. However, Muun is a custodial Lightning wallet, circumventing the Lightning infrastructure Muun is praised for simplifying. As a result, paying via Lightning on Muun can be just as expensive as a mainnet Bitcoin transaction.
El Salvador
El Salvador’s well-publicized attempt at bitcoinization proves instructive for what Lighting adoption may look like.
Anecdotally from this writer’s visits, locals exhibited reluctance when accepting Lightning payments. In the absence of a sophisticated fiat payment system, locals preferred domestic cash. The younger (Gen Z) generation was far more receptive to Bitcoin and was ready to accept Bitcoin through mainnet or Lightning. The older population, however, seemed equally flustered by both mainnet Bitcoin and Lighting transactions, often requiring assistance to get their Bitcoin wallet accessible.
This behavior is likely due to the necessary obsolescence of old technologies and skills. Only time will tell if the products need to become more user-friendly, if users need to up their skills or a combination of both.
Why miners should care about Lighting
But Lightning developers and advocates aren’t waiting around.
Lightning node count and network capacity are growing at parabolic rates. With an estimated 500 TPS per node, increases in nodes and network capacity cause the LN to have cheaper and faster payments. In some cases, Lightning is already proving to be a faster and cheaper alternative to Visa. If the Lightning network continues to scale and becomes easier to use non-custodially, the Layer 2 network’s settlement volume may start to rival mainnet.
Bitcoin miners with smaller, at-home setups (<1,000 TH/s) stand to strongly benefit from a greater adoption of Lightning payments, specifically for mining pool withdrawals. Mining pools that incorporate lower withdrawal minimums, facilitated via the LN, will attract smaller miners that wish to save on payout fees and/or increase payout frequency. As Hashprice continues on its long-term trajectory toward asymptotic zero, smaller miners can raise their margins and increase payout frequency by using a mining pool with Lightning payouts.
Why is Lightning adoption where it is today? Lightning is about five years old. When Bitcoin was five years old, it was hard to buy things with Bitcoin and even harder to get paid in Bitcoin. Non-custodial wallets and transactions weren’t accessible to those not familiar with command lines, and custodial Bitcoin exchanges provided the only viable option for the masses.
Today, non-custodial Bitcoin is straightforward to use and secure. Improvements to wallet software and hardware allow those with a basic understanding of computers to secure and transact their Bitcoin safely. Based on the current trajectory of Lightning network data and wake-up calls sprinkled into public discourse, the next five years may bring the innovation and adoption of the Lighting Network bitcoiners have been eagerly awaiting.
Photo by Michał Mancewicz on Unsplash
