# Lightning Ecosystem ### River: [Lightning Report 2023](https://river.com/learn/files/river-lightning-report-2023.pdf) 2024-10 ![[Screenshot 2024-08-16 at 7.00.53 PM.png]] >A range of technical upgrades and new features can significantly improve the user experience on the Lightning Network, and thus make it more appealing for people who are currently not using it. Specifically, upgrades targeting the following: > >- Reducing manual effort to use Lightning. >- Reducing the technical expertise needed to use Lightning. >- Reducing on-chain fees and/or the on-chain footprint of Lightning. >- Eliminating the need for users to be online to receive payments. >- Enabling Lightning usage without price volatility risk. >- Making it easier to identify personal or business relations on Lightning. >- Improving the security of internet-connected wallets > >\[...\] > >It is worth noting that there are also self-imposed upgrades by Bitcoiners, which would not necessarily drive significant adoption, but are critical for the long-term decentralization and success of the network. These are upgrades targeting: >- Making it easier to use Lightning non-custodially. >- Improving privacy on the Lightning network. > >The reasons these upgrades do not hold back widespread adoption are that ==the average user today does not care much about non-custodial usage, as is evident by far more people holding Bitcoin on exchanges than in self-custody, and they also do not care about privacy, until it starts becoming a problem in their daily lives==. **Lightning-native Businesses** *If you look back at the industry overview we shared in chapter 1.4, it is clear that there are many Lightning-native companies. This is a logical consequence of Lightning enthusiasts being at the front lines of the technology, and being first to recreate existing solutions and adding Lightning to them. Many of these Lightning-native companies have emerged in the past two years. A lot of them are still looking for product-market fit and do not have a profitable business model at the moment. Becoming profitable is their primary concern, and they have to build traction from scratch. ==This process can take years, especially given that their user base is often limited to a subset of people who hold Bitcoin. As a result, their success is often tied to Bitcoin adoption increasing, which is a risky position to be in as a business.== In general, existing businesses that adopt Lightning have a higher probability of sticking around in the long term. These can be companies that already succeeded in the Bitcoin space or non-Bitcoin companies.* **Bitcoin Businesses Adopting Lightning** *When successful Bitcoin businesses integrate Lightning in their products or services instead, it allows these solutions to reach a larger user base sooner. We already covered exchange adoption earlier in this chapter, but there are still many other Bitcoin businesses that could be using Lightning. We expect that if fee pressure returns, most Bitcoin businesses will be forced to integrate Lightning if they haven’t already done so.* **Non-Bitcoin Businesses Adopting Lightning** *The real acceleration in Lightning adoption comes from non-Bitcoin businesses that integrate it. When they do, it saves years of work to expose a large number of people to Lightning. Cash App is a prime example of this, completely overshadowing all other Lightning wallets in terms of users. This doesn’t mean Cash App necessarily has the most active Lightning users out of all wallets, but they do have tremendous potential to expose many new people to Bitcoin and Lightning, and arguably the highest odds of survival due to already being a profitable business.* **Lightning As a Backend Solution** *Increased Lightning adoption does not necessarily require consumers to use it directly. We are already seeing solutions built on Lightning that do not require the end user to be aware of how it works or that it is even being used. They only know value is being exchanged instantly and at a global scale, which is enough. It drastically reduces the effort to onboard new users, while they still reap the benefits of Lightning. People often don’t know how technologies such as the Internet or credit cards work, they just know that it works.* *The strongest example of such a solution is payment networks that are being built on Lightning, which we covered in our previous report on Bitcoin vs. the $156 Trillion Global Payments Industry. Exchanges in over a dozen countries are already connected through the Lightning Network today to enable remittances with automated local currency conversion, without the user having to know about Lightning. Beyond these networks, almost every human can access an exchange that integrates with Lightning.* **How the Lightning Model Beats Fintechs** *Fintech companies use banks in various countries to do slow internal settlements while fronting the cash to consumers for a seemingly faster user experience than traditional remittance companies.* *Lightning-powered businesses can effectively transfer value instantly, with better capital efficiency, at a global scale, and with partners that all speak one common language.* *Like with Fintechs, users do not realize how the internal accounting happens, and as a result, need to have no understanding of the technology that is being used. They do need to (temporarily) trust the companies involved. Better yet, the consumer does not need to hold any Bitcoin in this model and is thus never exposed to price volatility if they do not want to be.* ![[Screenshot 2024-08-19 at 2.36.45 PM.png]] *The tradeoff this model makes is that price drops now fall upon the exchanges. If they do not use a service like River Lightning, they must hold significant amounts of Bitcoin in their Lightning payment channels to satisfy user demand at all times. They can offset risk by charging small fees for payments, but it is a business challenge to ensure the exchange is long-term profitable. However, exchanges are likely better equipped than individual users to protect themselves against price drops.* *A major risk of the model is that it is vulnerable to regulatory changes aimed at undermining Bitcoin. The companies involved rely on the banking system to operate and could have their access cut off, as we have historically seen in some countries. In addition, the model does not eliminate costs to move money into and out of these services.* *If this model scales well, it is likely that in the long run, the financial services that are part of this network would turn into major banking players, as people would increasingly want to hold their balance on these platforms for convenience and make use of additional services. As a result, all kinds of financial institutions will attempt to join in, especially to service businesses that send orders of magnitude more value globally. However, these businesses won’t have in-house Lightning Network expertise and will likely outsource this part of the operation to accelerate their go-to-market and manage costs, as talent will be scarce. River has built River Lightning to make it easy for companies to participate in the Lightning Network through an API service.* **Conclusion** *While critics get hung up on the plateau or slump in network metrics around nodes, channels, and capacity, the underlying trend of activity is crystal clear: Over the past two years, Lightning has been growing tremendously in transaction count 1,212%, volume 546%, and solutions built on top of it. The “nobody is using Lightning” meme is dead.* *The real discussion is around non-custodial versus custodial usage, which refers to whether users hold their funds or not. Making non-custodial usage as appealing as custodial wallets is a tough challenge, one that may require orders of magnitude more developers, companies, and capital to help figure out. The best way to draw these resources in is through user growth, and thus any user, custodial or non-custodial, is contributing to the mission of improving Lightning so that it can continue to grow and be a trust-minimized scalability solution for Bitcoin.* *Lightning shares many of Bitcoin’s challenges. It is complex to understand, and many users prefer to trust custodial solutions to offload the responsibilities that come with owning your money. Bitcoin itself is also largely used custodially, as the majority of users hold their Bitcoin on exchanges. This does not mean that Bitcoin or Lightning has failed, nor that the situation won’t change in the future. New solutions may emerge, and until then, Bitcoin can be used non-custodially by those who want self-sovereignty, and it can be a more transparent alternative to the opaque traditional financial industry for custodial users.* ### K33 Research: [The State of Lightning Volume 2](https://k33.com/research/articles/the-state-of-lightning-volume-2) (Previously Arcane Research) 2022-04-05 ![[Pasted image 20221116190030.png]]