Is the Bitcoin Lightning Network the Future of Payments?
Authors: Martin Betz, Dr. Jonas Gross, Jonathan Knoll, Yannic Fraebel, Denis Scheller, Prof. Dr. Philipp Sandner, Daniel Wingen
Executive Summary
The Lightning Network is the next evolutionary step of Bitcoin. With the Lightning Network as the rails and Bitcoin as the vehicle, there is tremendous disruptive potential in how payments are conducted for countless industries, and far-reaching implications for companies, non-profits, merchants, and consumers alike.
Bitcoin enables global transactions without intermediaries. However, settling all payments via the Bitcoin Blockchain has limitations. The Lightning Network can significantly increase payment throughput, which is necessary for the mainstream adoption of Bitcoin as a payment system.
The adoption of Lightning will continue to increase in the coming years as soon as a broader audience becomes aware of the added value and beneficial applications. Also the possibility to send other assets, such as stablecoins, via the Lightning Network, might positively impact its development. Similar to the evolution of the Internet, Lightning’s technical complexity will soon be abstracted away which will reduce barriers to entry by providing a more intuitive user experience.
Although Lightning has great potential, we also need to acknowledge that a lot of work needs to be done as the technology matures (see Figure 1). As Lightning moves from research and development to more commercial applications, it is clear that various aspects like usability need to be improved to ensure that non-technical users can take advantage of the Lightning Network. People and businesses, alike, should be able to run nodes that send and receive invoices without needing an extensive technical background or knowledge. Similarly, legal, compliance, and operational issues must be addressed globally before Lightning’s network effects are fully realized.
The Lightning Network has made major improvements in transaction resilience over the past few years. However, proper liquidity management to enable seamless routing, especially for large payments, needs further progress. Moreover, on- and off-ramp costs and volatility issues need to be addressed, which currently can negate near-zero costs and instant settlement benefits of the Lightning Network itself.
Luckily, many people and companies (e.g., Strike, Lightspark, Lightning Labs, Opennode, Bitcoin Suisse, and Galoy, to name a few) are working to address these challenges. In time, many of these challenges will be solved, similar to the development of other technologies that were introduced in the past. For example, VOIP was virtually unusable when it first came out in the mid-90s, given bandwidth constraints. Yet today, half the planet unconsciously uses it to communicate.
Addressing those challenges will make the Bitcoin Lightning Network’s inherent advantages shine even brighter:
- an independent network (unfreezable, censorship-resistant),
- a cash-like bearer instrument with near-instant finality with no chargebacks or reversals,
- near-zero costs for even micropayments,
- a globally recognized and inclusive currency that is the same everywhere, and
- Lightning’s potential interoperability to be used with other assets or blockchains
Ultimately, the Lightning Network has the potential to live up to its promise of becoming a global value transfer settlement network that acts as an open protocol for money. The open source movement showed us over the past several decades the innovative power that can be released with that approach.
This report highlights the first sprouts of those innovations and the art of the possible, covering the motivation, functionality, and use cases, as well as the future of Lightning.
About the Authors
Martin Betz is the Managing Director of Consulting Bitcoin. The
consultancy specializes in creating company-specific strategy positions
on the Bitcoin megatrend and the development of new Bitcoin-based
business models. He is the Co-Founder of German-language podcasts
Nodesignal and Der Bitcoin Effekt.
Yannic Fraebel is the Managing Director of App-Learning GmbH. He
holds a Master’s degree in Business Informatics from the University of
Applied Sciences in Munich. His focus is on bitcoin, cybersecurity and
economics. Furthermore, Yannic is an Advisor at Blockchain Founders
Group AG (BFG) and a former mentor of the DeFi Talents Program. You
can reach Yannic at yannic@app-learning.com.
Dr. Jonas Gross is Chief Operating Officer of etonec GmbH. Jonas holds a
PhD in Economics from the University of Bayreuth and his main areas of
interest are digital central bank currencies, stablecoins, cryptocurrencies
and monetary policy. In addition, Jonas is Chairman of the Digital Euro
Association (DEA), co-host of the podcast Bitcoin, Fiat, & Rock ’n’ Roll, and
a member of the Expert Panel of the European Blockchain Observatory
and Forum. You can reach Jonas at jonas@etonec.com.
Jonathan Knoll is Founder and Managing Director of etonec GmbH. He
has more than 25 years of experience in the payment & banking and
blockchain industry working for innovative companies such as Sun
Microsystems, PayPal/eBay, and Libra/Diem, where he was Head of
Strategic Partnerships. At etonec, he is excited about building solutions at
the global intersection of payments & blockchain, and digital assets. You
can reach Jonathan via jonathan@etonec.com.
Denis Scheller is Senior Manager Bitcoin Suisse Pay at Bitcoin Suisse.
Denis holds a degree in International Business Administration from Duale
Hochschule Mannheim (Germany) and has been working in payments
and e-commerce for many years. At Bitcoin Suisse Pay, Denis helps build
crypto payment infrastructure. He is interested in macroeconomics and
how Bitcoin and Lightning technology can enable a more equitable
society. You can reach Denis at denis.scheller@bitcoinsuisse.com.
Prof. Dr. Philipp Sandner founded the Frankfurt School Blockchain Center
(FSBC). From 2018 to 2021, he was named one of the “Top 30” Economists
by the Frankfurter Allgemeine Zeitung (FAZ). He was a member of the
FinTechRat and the Digital Finance Forum of the German Federal Ministry
of Finance. He is also on the Board of Directors at FiveT Fintech Funds,
21e6 Capital and Blockchain Founders Group — companies active in
venture capital for blockchain startups and asset management of crypto
assets.
Daniel Wingen has studied blockchains and cryptocurrencies since 2015.
He organized the Value of Bitcoin Conference in Munich in 2019 together
with Bayerische Landesbank. Currently, he is active as Director of
Business Development at Galoy Inc, an open-source enterprise software
for Lightning. He is also the program director for the Industry Day of the
largest German-language Bitcoin conference in Innsbruck, Co-Founder
of the Bitcoin grassroots movement EINUNDZWANZIG, and co-host of Der
Bitcoin Effekt podcast.
The original paper has been published on the etonec homepage.
