Onboarding A Billion Users To Bitcoin

Onboarding the first billion users to Bitcoin requires a solution that scales Bitcoin to compete with the throughput of Visa or Mastercard. Currently, Bitcoin can handle around seven transactions per second. If Bitcoinscaled thousands of transactions per second, it could process billions of transactions. Over the past year, a Bitcoin scaling solution withexponential user and developer adoption is the Lightning Network.

Lightning Network

The Lightning Network was first introduced in a paper by Joseph Poon and Thaddeus Dryja in 2015¹. Outlined in their paper was the idea of payment channels for off-chain transactions. Off-chain means that transactions take place on a layer above the main chain, but still maintain the security by pegging or settling on the main chain. Payment channels effectively scale Bitcoin because it only cares about the transactions it’s interacting with by taking the transactions off-chain. In contrast, when you transact on the Bitcoin main chain your transaction must propagate through the entire network.

The Lightning Network improves Bitcoin's scalability in key areas:

• Fast transactions - Transactions can be settled instantaneously. Speeds native to the internet.
• Low transaction fees - Fees are minuscule over Lightning. Less than a penny.
• High throughput - Lightning can handle tens of millions of transactions per second.
• Security & Privacy - Since transactions are off-chain, it is hard to trace payments over the network.

A payment channel is a financial agreement between two parties to "stake" their Bitcoin to perform off-chain transactions. The Lightning Network maintains the security of Bitcoin by funding and closing channels with Bitcoin transactions. When two parties want to start a channel, they deposit their Bitcoin into a 2-of-2 multisig address. This is called the funding transaction and when confirmed on the Bitcoin blockchain, the participants are in the Lightning Network protocol.

You can think of a payment channel as an abacus. The beads on the wire represent the Bitcoin balance in the channel and the beads on each side represent the liquidity for each party. When you transact over Lightning you are pushing the beads, or Bitcoin, to the other side of the abacus.

Lightning Network Adoption

Lightning Network adoption has grown exponentially over the last year. The total capacity of Bitcoin on the Lightning Network has grown 222% (~3,405 BTC) since Jan 1, 2021². The total nodes on the network have grown 146% (20,317 node) since Jan 1, 2021². This exponential growth has garnered substantial interest from retail users and businesses.

The Lightning Network is also drawing attention from businesses due to its potential cost savings. A merchant pays around 3% for every card transaction. A merchant can pay less than a penny in fees to start accepting Lightning payments. Additionally, Lightning payments are settled instantly. A merchant does not need to wait days, or even weeks, for a payment to clear.

Interest in Bitcoin has surged in the past year. Due to the surge, there is increased attention and excitement over Lightning, and businesses are joining in on the hype. The future is bright for Bitcoin and Lightning. Having the ability to use Bitcoin in everyday life will quickly become a reality with the expansion of Lightning.

1. https://lightning.network/lightning-network-paper.pdf

1. https://bitcoinvisuals.com/lightning