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Federal Reserve Comments on Lightning Network

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Federal Reserve Releases Lightning Network Report

This month saw some interesting development from the Federal Reserve regarding the Lightning Network. The regulatory group released a report that highlighted some of the benefits and effects of the second layer protocol to date. The report emphasizes the benefits of the network and how it can improve Bitcoin’s capabilities to function as a currency on a larger scale.

The FED is Looking into Bitcoin’s Lightning Network

The Federal Reserve Bank of Cleveland’s study,The Lightning Network: Turning Bitcoin into Money” has been received well by Bitcoiners around the globe. The report discusses the Lightning Network’s growth and effects from January 1, 2017, to September 5, 2019. These findings shed some light on the potential this protocol holds.

The report revealed that more Lightning Network adoption results in less congestion for Bitcoiners in general. There was a significant correlation between these statistics. They also found that this scenario led to more arbitrage trading potential, as it was much cheaper to take advantage of any price changes between exchanges.

The Lightning Network - Federal Reserve Report

The Lightning Network – Federal Reserve Report

They also found that the Lightning Network reduced mining fees for traders. Mining fees can add for Bitcoiners. The Lightning Network leverages personal payment channels to reduce the number of times miners need to place transactions on the blockchain. This setup brings along another advantage, decentralization.

Decentralized

The Lightning Network has helped to drive competition between nodes up. In turn, these actions resulted in more competitive rates for users and made the network more decentralized. The mempool count shrunk in correlation to the growing number of Lightning Network channels in operation as well.

It’s About Sustainability

The FED’s report discussed another long-overlooked fact about the Lightning Network, it makes Bitcoin more sustainable. The Lightning Network doesn’t require power-hungry miners. As such, every Bitcoin transaction made on the Lightning Network utilizes less electricity in addition to being faster and more affordable than the mainnet.

Lightning Can Strike Anywhere

The FED spoke on how the Lightning Network could be used on any number of blockchains. The system is expandable and after over 2.5 years of BETA testing, it’s now able to handle major capacity. The report discusses how the Lightning Network could easily integrate onto other PoW and Bitcoin-forked blockchains with few changes.

More Pressure to Regulate Cryptocurrencies

This year has seen considerable pressure mounted on regulators to figure out some sort of framework for digital currencies. President Biden sent a letter requesting a full valuation of the market. All of this comes amidst the backdrop of 40-year high inflation, looming global conflict, and more countries adopting Bitcoin as legal tender.

Keep Your Eyes on the Prize

The FEDs Lightning Network report helped to demonstrate how far the group has come in its understanding of digital assets. They are now willing to see the potential this technology has to improve everyone’s lives. As such, this report should be seen as a sign of the times. The Lightning Network is on the rise with more people than ever are aware of its benefits.

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