The Lightning Network: Turning Bitcoin into Money

18 Pages Posted: 22 Jun 2022

See all articles by Anantha Divakaruni

Anantha Divakaruni

University of Bergen

Peter Zimmerman

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Date Written: June 21, 2022

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

Suggested Citation

Divakaruni, Anantha and Zimmerman, Peter, The Lightning Network: Turning Bitcoin into Money (June 21, 2022). FRB of Cleveland Working Paper No. 22-19, 2022, Available at SSRN: https://ssrn.com/abstract=4142590 or http://dx.doi.org/10.2139/ssrn.4142590

Anantha Divakaruni

University of Bergen ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway

Peter Zimmerman (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

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