Working Paper

The Lightning Network: Turning Bitcoin into Money

Abstract: The Lightning Network (LN) is a means of netting Bitcoin payments outside the blockchain. We find a significant association between LN adoption and reduced blockchain congestion, suggesting that the LN has helped improve the efficiency of Bitcoin as a means of payment. This improvement cannot be explained by other factors, such as changes in demand or the adoption of SegWit. We find mixed evidence on whether increased centralization in the Lightning Network has improved its efficiency. Our findings have implications for the future of cryptocurrencies as a means of payment and their environmental footprint.

Keywords: bitcoin; blockchain; cryptocurrency; Lightning Network; payments;

JEL Classification: E42; G10;

https://doi.org/10.26509/frbc-wp-202219

Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers

Publication Date: 2022-06-21

Number: 22-19