Read now to learn how Bitcoin on the Lightning Network is the beginning of Bitcoin's payment revolution.
Pundits on social media and mainstream media often make it seem like governments outright despise Bitcoin and the ideals that it stands for. That certainly seemed to be the case earlier this month when we rebutted a number of poorly-developed theses produced with the backing of the United States Department of Defense.
Governments have definitely given themselves a lot of reasons to fear Bitcoin’s success as well. Bitcoin can’t be controlled, which means that governments can’t use it to control you. That’s a godsend for you and me and a nail in the coffin of government overreach.
However, from time to time we’re reminded that governments are made up of individual people, and that not all of them are opposed to the brewing Bitcoin revolution. That seems to be the case for some members of the Federal Reserve Bank of Cleveland in the United States.
Bitcoin Is A Payments Revolution
A pair of researchers within the United States’ Central Bank are apparently interested in Bitcoin’s ability to serve as a payment network, and more specifically, in the Lightning Network’s ability to help scale Bitcoin transaction throughput. In fact, the FED’s researchers seem to have a rather rosy outlook on the subject:
We find a significant association between LN adoption and reduced blockchain congestion, suggesting that the LN has helped improve the efficiency of Bitcoin as a means of payment.
Their research stands in direct contrast to a lot of FUD being spread by Bitcoin critics who claim, incorrectly, that Bitcoin can never scale to serve as a global currency. For example, Bitcoin scalability was one of the primary drivers in the creation of copycat cryptocurrencies, Bitcoin Cash and Bitcoin Satoshi Vision, which both chose to add an excessive level of centralization to their operations in order to marginally increase transaction capacity on their layer-1 blockchains.
As we discussed last week, Bitcoin is destined to become a revolution in money and payments. No amount of FUD can stop that from happening. And as the researchers from the FED astutely observed, the Lightning Network is poised to become a key part of everyday Bitcoin transactions.
Everyday Lightning Payments
The main critique against Bitcoin’s scalability hinges on the number of transactions that it can process per second, which is currently estimated at around seven. Since tens of thousands of transactions per minute occur worldwide, critics assume that Bitcoin can never be usable as an everyday currency.
What those critics ignore however, is the fact that each of Bitcoin’s on-chain transactions can represent any number of off-chain transactions happening within Bitcoin banks and on layer-2 solutions like the Lightning Network. What we see as only seven transactions per second on the Bitcoin blockchain, could in reality be hundreds or even thousands of exchanges.
The Lightning Network offers us a perfect example: two Bitcoin users can open a channel by depositing Bitcoin to a smart contract and are then able to process any number of transactions amongst themselves before settling the final amount back on the blockchain. In fact, the network can be even more efficient than that since not all users are required to open a payment channel with every other user. Instead, the users who want to transact with one another without establishing a channel just have to find enough peers in common and piggy back off of their peers’ payment channels.
Without a doubt, solutions like the Lightning Network, and others that haven’t even been thought of yet, will make it easier for everyday users to engage with the Bitcoin blockchain. As a result, Bitcoin’s payment revolution isn’t a matter of if in my opinion, but simply a matter of when.
For a deeper explanation on how the Lightning Network works and what it accomplishes, check out the primer I wrote about it last year:
The Lightning Network - Lightning In a Bottle
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This is not financial or business advice. This newsletter and related content are for informational purposes only. Cryptocurrencies and digital assets can be risky. Always do your own research before making any sort of investment.
