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Satoshi Nakamoto produced the whitepaper for Bitcoin, one of the most disruptive – if not THE most disruptive – financial and technical discoveries of the modern period, in 2009. Six years later, in February 2015, Thaddeus Dryja and Joseph Poon published their co-authored article titled “The Bitcoin Lightning Network: Scalable Off-Chain Instant Payments,” which significantly increased the Bitcoin network’s scalability.

Since the publication of these two renowned, creative, and significant proofs of concept, the financial industry has moved from skeptics to enthusiastic contributors and adopters of this technology! From Laszlo Hanyecz’s legendary “Bitcoin Pizza” to El Salvador becoming the first country to make Bitcoin legal tender (creating a national use-case for Lightning Network), it is safe to say that we are witnessing a global phenomenon that will shake the foundations of established remittance and global payment infrastructure (s).

Nonetheless, if this is the case, most people would be left wondering, “What is Lightning Network?”

What Is The Lightning Network?

The Lightning Network is an off-chain (Layer-2) system that consists of several payment channels with the goal of reducing value-transfer congestion on Bitcoin’s mainnet, often known as blockchain bloat. What exactly does this mean? Simply defined, the goal of Lightning Network is to improve usability and scalability capacity through the adoption of peer-to-peer payment channels.

In order for these payment channels to exist, at least two parties must be interested in transacting with one another (e.g., a customer and a McDonalds). The consumer (‘payer’) would need to put some Bitcoin (measured in Satoshis or SATs) onto the network to start the payment channel.

Following that, a smart contract is established and encoded with agreed-upon rules that both parties must follow, removing the need for a third-party facilitator and ensuring that both parties fulfill their respective ends of the deal. The receiver (in this scenario, McDonald’s) will issue an invoice to the customer’s wallet informing them that they owe 2,112 Satoshis ($1.29) for the bought McChicken sandwich.

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Assume, for example, that the payer is a devoted client who likes purchasing McChicken sandwiches on a regular basis. Fortunately for him, the established payment channel between him and Mcdonald’s may remain open indefinitely, allowing him to buy as many sandwiches as he wants (as long as he has enough Satoshis to cover the bill).

Because Lightning Network is a Layer-2 protocol, transactions between both parties are not broadcast to the Bitcoin main network until the channel is closed. As a result, if both parties agree to stop the payment channel, all transactions carried out through it will be combined and broadcast to Bitcoin’s main network as a single transaction.

The Lightning Network in Numbers

Arcane Research has released a paper titled “The State of Lightning,” which analyzes the exponential expansion of Bitcoin’s lightning network from its inception to its present global acceptance. Although it was formally launched in 2018, the Lightning Network did not see a significant usage increase until September 2021, when it went parabolic, which may be directly attributable to El Salvador’s adoption of Bitcoin as legal cash. El Salvador’s President Nayib Bukele increased his commitment to national Bitcoin adoption by unveiling the Chivo wallet, which now allows over 3 million Salvadorans to pay over the Lightning Network on their mobile telephones.

This news alone sent shockwaves across the remittances sector, demonstrating a significant shift from traditional payment providers and toward permissionless peer-to-peer networks. As the content of payments continues to diversify as additional users get access to Lightning payment, it is unavoidable that Lightning will be used more frequently in daily chores such as merchant payments, bill payments, household expenses, and, of course, remittances.

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According to Arcane Research, Lightning adoption in El Salvador might reach almost 90% of the population by 2026, implying a monthly volume increase of $650 million and 20 million transactions for household spending and remittance payments.

On a worldwide scale, all eyes are on El Salvador’s approach’s success. If that happens, other nations will most certainly follow suit, particularly those with hyperinflationary economies, large unbanked/underbanked populations, significant reliance on the US currency, and a heavy reliance on remittances.

With these economic criteria in mind, Arcane Research compiled a list of nations that possess similar characteristics. These nations are predicted to have a combined population of 850 million people, 650 million currently unbanked. If 10% of the predicted population adopts Bitcoin before 2030, there will be 50 million additional Lightning Network users by the end of the decade.

At the time of writing, there are roughly:

There are 17,434 Lightning Network Nodes

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78,375 Lightning Channels

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A Lightning Network Channel Size of 0.04035309 BTC on average

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What Does the Future Hold for the Lightning Network?

Bitcoin and Lightning, as indicated throughout this post, are here to stay for the long haul. The question is no longer whether or when retail consumers will be able to utilize micropayments to buy a gallon of milk or pay their monthly phone bill. Visionaries like Jack Mallers and Jack Dorsey are working to make this a reality with their firms, Strike and, of course, Twitter.

Strike is directly placing lightning network utility in the hands of retail consumers (as seen in El Salvador). Individuals now have the fiat to fast on-ramp required to send money to loved ones overseas without requiring an intermediate business such as Western Union or MoneyGram!

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To take this a step further, Twitter has integrated Strike’s services into a new tipping tool that allows Twitter users to transfer microtransactions of Bitcoin to one another! This alone has the potential to change the way we think about the remittance sector. People everywhere now have access to an open, private, tamper-proof, decentralized financial system requiring only a Bitcoin address (or a Twitter account) and a Wi-Fi connection!

Micropayments will eventually go from a budding use-case to a mainstream kind of transactional activity on a worldwide scale. Furthermore, as Web3 ecosystems evolve, these payment methods will encourage the development of a strong gig, machine economy – providing genuine pay-as-you-go capabilities no matter where you are in the globe and truly bringing use invoiced to a whole new and possibly extremely granular level!

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