According to cryptocurrency exchange Coinbase, the $150 million payments industry is set to be significantly disrupted by Lightning Network.
Lightning Network is a layer-2 scaling solution built on top of Bitcoins that enables instant and cost-effective transactions for BTC.
In a blog article published on August 10, Coinbase says the Lightning Network is more indicative of real world utility when compared to the more speculative activity driving growth on smart contract platforms. It will also have major implications on the future utility and value of Bitcoin.
With increasing transaction volumes, 7 transactions per second for Bitcoin will no longer be able to meet the needs of users. Users will often have to experience long wait times and high fees, making it unsuitable for day-to-day transactions, like using bitcoin to get a cup of coffee at your local coffee shop.
Coinbase says once Lightning Network gains traction, it can even undercut the fees of traditional payment processing networks like Visa and Mastercards, which collects 2-3% per transaction. Payment service OpenNode will be able to leverage Lightning Network to do the exact same thing, but for a 1% fee.
With all being said, Lighting Network might not be able to replace Visa, Mastercard or international remittance companies in the short run as it is still in its early stage and does not enjoy large network effects like its incumbents.
Current adoption of Lightning is tiny but growing. According to an estimation by Arcane Research, Lightning facilitated $20-30M in monthly payments in Q1 2022 alone, with a four-fold YoY increase.
The growth of Lightning is gaining speed as 26 exchanges now support Lightning, notably Kraken, Bitfinex, and Bitstamp. Users of these exchanges can instantly and inexpensively deposit and withdraw bitcoin to and from any lightning wallet, increasing the speed and lowering the cost compared to a typical BTC transaction.
With Lightning acting as a universally accessible payment network, Bitcoin could potentially evolve into a true global reserve currency.