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The Lightning Network: Turning Bitcoin into Money

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  • Anantha Divakaruni
  • Peter Zimmerman

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.

Suggested Citation

  • Anantha Divakaruni & Peter Zimmerman, 2022. "The Lightning Network: Turning Bitcoin into Money," Working Papers 22-19, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwq:94363
    DOI: 10.26509/frbc-wp-202219
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    References listed on IDEAS

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    Cited by:

    1. Zimmerman, Peter, 2020. "Blockchain structure and cryptocurrency prices," Bank of England working papers 855, Bank of England.
    2. Murray A. Rudd, 2023. "Bitcoin Is Full of Surprises," Challenges, MDPI, vol. 14(2), pages 1-14, May.

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    More about this item

    Keywords

    bitcoin; blockchain; cryptocurrency; Lightning Network; payments;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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