Federal Reserve Bank of Cleveland excited about Lightning

Last month, the Federal Reserve Bank of Cleveland published a paper called ??????The Lightning Network: Turning Bitcoin into Money???? . The piece takes a detailed look at the Lightning Network. One of the findings of the study is that there is a significant correlation between Lightning adoption and reduced blockchain congestion , suggesting that Lightning contributes to improving the efficiency of Bitcoin as a means of payment.

First, a brief word about the various regional Federal Reserve Banks of the United States (US). In total, there are 12 regional central banks in the US that represent the 50 (federal) states.

These 12 banks nominate 5 delegates who together with 7 elected directors form the board of the Federal Open Market Committee (FOMC). The FOMC is the main monetary policy body in the US and makes important decisions about interest rates and money supply growth.

Turn Bitcoin into Money

In addition to enabling fast and cheap transactions without sacrificing the decentralized security that the blockchain provides, the Lightning Network helps reduce the number of on-chain transactions on the Bitcoin network. This is a step in the right direction to turn bitcoin into actual money, according to the central bank of Cleveland. In a sense, the central bank here recognizes the importance of Lightning for bitcoin payments.

Basically, only two transactions on the Bitcoin network are needed regardless of the amount or number of payments. Federal Reserve Bank of Cleveland

The adoption of Lightning can reduce demand for space on the blockchain and thus lead to reduced congestion . The latter occurs when the number of transactions exceeds the capacity of the Bitcoin network, resulting in high transaction costs and slower transaction processing.

In other words, the Lightning Network is extremely suitable for microtransactions, while the Bitcoin Network is only used for larger transactions that require more security. In this way the main network is not overloaded.??

Discussions about enlarging blocks to fit more transactions will probably no longer occur in the future. A theme that has led to forks in the past.

Cleveland’s central bank research shows that Lightning advances bitcoin as a means of payment. While bitcoin is being embraced as legal tender in El Salvador and the Central African Republic, the Lightning Network still has a long way to go. As long as the network continues to grow steadily, everyone may pay via Lightning in the future (perhaps without realizing it).

Do you want to experiment with Lightning yourself? We would like to refer you to BL3P, Bitonic’s bitcoin exchange. Please note that you must already be verified on BL3P and Lightning is currently in the pilot phase where a limited group of users can test deposits and withdrawals. New users can therefore not use it (for the time being).

Federal Reserve Bank of Cleveland working papers are (preliminary) material distributed to encourage discussion and critical commentary on ongoing research. Accordingly, the documents are not subject to the formal editorial review accorded to official publications of the Federal Reserve Bank of Cleveland.

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