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A Tale of Two Layers: The Mutual Relationship between Bitcoin and Lightning Network

Author

Listed:
  • Stefano Martinazzi

    (Department of Management, Economics and Industrial Engineering, Politecnico di Milano, 20121 Milan, Italy)

  • Daniele Regoli

    (Data Science and Artificial Intelligence, Intesa Sanpaolo, 20121 Milan, Italy
    The views expressed in this paper are those of the author and should not be attributed to Intesa Sanpaolo or to the author as representative or employee of Intesa Sanpaolo.)

  • Andrea Flori

    (Department of Management, Economics and Industrial Engineering, Politecnico di Milano, 20121 Milan, Italy)

Abstract

A major concern of the adoption and scalability of Blockchain technologies refers to their efficient use for payments. In this work, we analyze how Lightning Network (LN), which represents a relevant infrastructural novelty, is influenced by the market dynamics of its referring cryptocurrency, namely Bitcoin. In so doing, we focus on how the LN is efficient in performing transactions and we relate this feature to the market conditions of Bitcoin. By applying the Toda–Yamamoto variant of Granger-causality, we note that market conditions of Bitcoin do not significantly influence the topological configuration of the LN. Hence, although the LN represents a second layer on the Bitcoin blockchain, our findings suggest that its efficient functioning does not appear to be related to the simple market performance of its underlying cryptocurrency and, in particular, of its volatile market fluctuations. This result may therefore contribute to shed light on the practical usage of the LN as a blockchain technology to favor transactions.

Suggested Citation

  • Stefano Martinazzi & Daniele Regoli & Andrea Flori, 2020. "A Tale of Two Layers: The Mutual Relationship between Bitcoin and Lightning Network," Risks, MDPI, vol. 8(4), pages 1-18, December.
    • Handle: RePEc:gam:jrisks:v:8:y:2020:i:4:p:129-:d:454506
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