Fidelity Investments has released a positive report about the Lightning Network. This network enables instant and low-cost Bitcoin transactions.
The image shows a large, classic Bitcoin breaking apart. Pieces are falling away, revealing a modern, brighter version underneath. Lightning and energy flashes mark this change, showing a powerful, technological shift.
The Lightning Network is a second layer built on Bitcoin. It boosts transaction speed and privacy.
This network addresses the slowness and high costs of regular Bitcoin transactions. Bitcoin is known as "Layer 1," while the Lightning Network is "Layer 2."
Bitcoin's design creates a transaction block every 10 minutes. Each block holds about 3,000 transactions and can be up to 4 MB. This limit is intentional. Increasing block size would reduce decentralization.
The idea of larger blocks led to the Bitcoin Cash (BCH) fork in 2017. This was not successful. BCH is now worth 0.3% of a BTC. The market decided that unlimited blocks would threaten decentralization.
Decentralization relies on many nodes that support the Bitcoin network. These nodes validate transactions and enforce the protocol, including the 21 million BTC limit.
The number of nodes depends on their cost. Cost is tied to the memory needed to store the blockchain, now at 630 GB. Larger blocks would raise this cost. This would hurt decentralization, which is key to Bitcoin's value.
Developers like Thaddeus Dryja created the Lightning Network. It offers near-instant transactions with very low fees. It does not compromise Bitcoin's decentralization.
Paying for coffee using the Lightning Network is now possible.
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The Lightning Network launched in 2017. It was a response to those who wanted larger blocks and created BCH.
Since then, many cryptocurrencies have claimed to fix Bitcoin's slow transaction speed. But, security was the priority. The Lightning Network increased transaction speed.
However, its growth has been slow. Bitcoin is mainly seen as a store of value. People prefer to spend euros or dollars before their bitcoins. Capital gains tax is another factor.
Using the Lightning Network requires an initial Bitcoin transaction. This moves bitcoins to a special Lightning Network wallet. It is best to add a good amount to avoid frequent Bitcoin network fees.
After the first transaction, payments are instant and nearly free. Fidelity's report notes fees average 0.02% for transactions between 100 and 1,000 euros. For transactions between 1 and 10 euros, the fee is 0.24%.
Transactions over 1,000 euros cost between $0.39 and $1.27. This fee-to-transaction ratio is rare in traditional finance.
Transaction speed is much faster than on the Bitcoin network. Voltage's data shows payments under 1,000 euros complete in under a second.
The best is yet to come.
Voltage data shows payment volumes rose almost 200% between 2023 and 2024. This is a 2,400% increase since 2022. These are encouraging signs, but LN payments are still only a small fraction of total crypto volume.