Is the Bitcoin Lightning Network for real?

Around the Block from Coinbase Ventures sheds light on key trends in crypto. Written by Connor Dempsey & Sam Newman

In the 13 years of its existence, Bitcoin has risen from obscurity to $1 trillion highs, settling over $60 trillion in total transfer volume along the way.

Despite these feats, Bitcoin’s decentralized design limits it to a mere 7 transactions per second. In times when demand to use the network exceeds 7 transactions, users experience long wait times and fees as high as $60 per transaction at the extreme. Even with fees recently hovering between $1–2, the network remains unsuitable for buying that proverbial cup of coffee.

Enter the Lightning Network: a layer-2 protocol built on top of Bitcoin that can theoretically scale to millions of instant transactions per second that cost pennies to send. If it gains traction, it can even undercut the fees of giants like Visa and Mastercard, along with the entire global remittance market.

But will it?

Lightning 101

As with most layer-2 solutions, Lightning seeks to increase transaction throughput and lower costs while retaining sufficient decentralization by moving activity to a second network. Once BTC is on the Lightning network, it can be transacted instantly typically at fractions of a penny.

Rather than expensively sending each transaction over the Bitcoin blockchain, users deposit BTC into the Lightning Network and then transact inexpensively through payment channels. As with most networks, the more people and companies that join, the more useful it becomes.

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