Mythbusting: LN can accommodate the entire world in a reasonable time while keeping blocks small

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The Lightning Network (LN) is a layer 2 payment protocol that works on top of the Bitcoin Core (BTC) network. It was created as a proposed scaling solution that would enable micropayments to happen through bidirectional payment channels. In order to use the LN, users must first send BTC to fund a channel, which would require an on-chain transaction. (Even if you're using a custodial LN wallet like Wallet of Satoshi, an on-chain transaction sending BTC from your own wallet to Wallet of Satoshi would be required.)

The case for LN is that it will allow smaller transactions (e.g. coffee purchases) to move off chain, freeing up the base layer for larger transactions. While Bitcoin Cash (BCH) chose to raise its block size limit in order to allow for a higher transaction throughput, BTC proponents have argued that only by keeping the block size small can they maintain enough decentralization of the network to keep it censorship resistant. Let's take a closer look to see if this is a viable strategy.

If we were to assume a 1 MB block size limit and 100% activation of segwit (Segwit, or segregated witness, removes the signature portion of BTC transactions, freeing up block space for more transactions), the maximum number of transactions that would fit into a single block would be 12,195 assuming every transaction contained a single input and a single ouput. For reference, the equivalent number using only non-segwit transactions is 5,208 (source).

Given most transactions have multiple inputs/outputs, and that segwit activation is currently around 50%, the number of real transactions that would fit into an actual block are significantly lower. A quick scan of the block history on coin.dance reveals the maximum number of transactions that fit into a block are approximately 3,500 in today's world. For this article, we will be generous and use 5,000 transactions per block.

So here is the math:

  • 144 blocks/day * 5,000 txs/block = 720,000 txs/day

  • 720,000 txs/day * 365 days/year = 262,800,000 txs/year

  • 5,000,000,000 users/262,800,000 txs/year = 19 .03 years

Assuming every on-chain transaction is being used to open a LN channel, it would take almost 20 years to onboard 5 billion users!

Since it is likely that there will be a significant number of transactions that happen on the base layer that have nothing to do with the LN, 20 years can easily balloon to 100 years, or more, especially considering a second on-chain transaction would be required in order to close a payment channel if you eventually want to take your coins off the LN.

Based on the above, it is clear that the LN would not be able to accommodate the entire world in reasonable time while keeping blocks small.

And keep in mind, this ignores all the other problems still facing LN, including but not limited to:

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Topics: mythbusting
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