Bitcoin’s Lightning Network was supposed to be the key to scaling Bitcoin adoption globally. Its proponents touted cheaper and faster transactions plus an emergent social graph for a new Bitcoin economy.
Seemingly magical demonstrations by influencers like Jack Mallers heralded a fulfillment of Bitcoin’s promise of peer-to-peer electronic cash. With transaction fees so cheap and transactions so instantaneous, Bitcoiners started buying coffee and groceries over the Lightning Network.
The idea was simple: sign a simple smart contract and transact endlessly via ‘bar tab’-type paper contracts, rather than paying an on-chain transaction fee every time.
Unfortunately, Lightning usage started to stall in late 2023 and since then, several long-time Lightning believers have renounced their faith.
In short, critics believe that the Lightning Network is slowly dying.
Dwindling bitcoin capacity
The amount of bitcoin that a user of the Lightning Network can access by joining a publicly available channel began dipping below 5,000 in December 2023. After months of steady decline, Lightning currently has a capacity of less than 4,700 bitcoins.
The average Lightning payment channel has a capacity of 8,729,836 satoshis, worth about $5,542. This capacity is only a small fraction of bitcoin’s circulating supply of about 19.5 million.
Crucially, Lightning has also been riddled with bugs.
Expensive to receive money
Most importantly, Lightning is counterintuitive and surprisingly expensive. In order to join the network, new users must pay for a regular Bitcoin transaction, on-chain. They can then send and receive that amount of bitcoin — i.e. their initial deposit — for negligible fees, skipping on-chain transactions via Lightning’s payment channels.
However, whenever the user wants to receive more bitcoin than they originally deposited to join a Lightning network channel, they must pay for an additional on-chain transaction to splice in additional bitcoin capacity.
Finally, to leave the network, they must again pay for an on-chain closing transaction.
Although these three (or more) on-chain transactions might eventually save a power user from innumerable on-chain transactions, for the average user, they are an annoyance and counterintuitive.
In particular, many new Lightning users complain about the topsy-turvy design of having to pay extra money to receive extra money. In normal commerce, recipients receive unlimited money freely; the sender pays extra to send large sums. Lightning flips that entirely, charging the recipient.
Why is there a channel open fee to receive a payment a payment with Phoenix every time you receive?
The person had to increase the channel fee to 25,000 sats.
Sent $100 CAD they received $88.95
I thought Phoenix was supposed to be non custodial AND cheap? pic.twitter.com/ZheKeK7e7V
— RGBrad Mills 🔑⚡️ (@bradmillscan) November 17, 2023
As a temporary solution, custodial Lightning companies have launched wallets that subsidize new users with extra, complimentary inbound capacity. This eliminates complaints and improves the user experience but these custodial solutions centralize Lightning, moving it far away from Bitcoin’s promise of true decentralization.
Indeed, on the first page of the Bitcoin whitepaper, Satoshi wrote, “What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.” In this context, the introduction of a trusted third party to make Lightning easy and cheap for the average recipient doesn’t seem very Bitcoin.
Channel freezes and other Lightning Network bugs
In October 2023, Lightning developers disclosed a vulnerability of Bitcoin Lightning Network users to so-called replacement cycling attacks. Soon, they disclosed another vulnerability to ‘jamming’ attacks. In November 2022, another unattributed Lightning routing bug came to light.
One bug in a popular Lightning implementation, LND, froze money inside Lightning for hours after a developer called Burak decided to broadcast a 998-signature Taproot transaction that broke the network.
Read more: Bug freezes bitcoin inside Lightning Network for hours
Significant developer departures from Bitcoin Lightning
As early as 2019, even Lightning’s co-creator, Tadge Dryja, admitted that Lightning might be overhyped. “Everybody is saying, ‘Lightning Network is going to be the best thing ever.’ Wait, LN can’t actually do that,” he said.
Dryja’s co-founder, Joseph Poon, has also stopped contributing to Lightning development.
Lightning Network developer Antoine Riard also halted his work on Lightning soon after the replacement cycling vulnerability was disclosed. He said this vulnerability put it in a “very perilous position” that could only be fixed at the base layer. Riard left to focus on Bitcoin Core development.
Another Lightning Network developer, Rene Pickhardt, expressed concerns about the ability to remain private on Lightning. Chainalysis affirmed that fear, beginning to offer tracking services of Lightning transactions in December 2021.
The more I study the lightning network the more I realize with shock that there are so many misconceptions about the privacy of Lightning in the wild for which often just the opposite seems to be true
I am scared that even in Mastering lightning we won’t be able to fix that 🙁
— Rene Pickhardt (@renepickhardt) August 27, 2020
Rene Pickhardt wrote the definitive book about Lightning. He still has doubts.
One of the oldest Bitcoin developers, Matt Corallo, the tenth contributor to Bitcoin Core, called the Lightning Network “kinda a joke.” Synonym’s John Carvalho agreed with that assessment on a recent interview with Vlad Costea, also concluding that Lightning has failed to meet the community’s expectations.
Corallo laughed at unpayable Lightning invoices via BTCPayServer. He opined that the Lightning Network needed to be made accessible to the general population, not just hobbyists.
Honestly, lightning today is kinda a joke, look at BTCPayServer – you can install lightning with one click, and then you will generate invoices that are unpayable cause you have no inbound liquidity! Never heard of inbound liquidity? I dunno google it or something…
— Matt Corallo (@TheBlueMatt) May 6, 2023
‘Blue Matt’ Corallo called the Bitcoin Lightning Network a joke.
A growing list of Bitcoin Lightning complaints
Bitcoin developer Paul Sztorc thinks it’s unlikely that Lightning Network will succeed. Indeed, he predicted that it will “collapse Theranos-style,” a reference to a company that was once touted as a revolution in medical diagnostics but has since collapsed. He has created a list of dozens of complaints and third-party predictions of its demise.
In any case, Lightning’s capacity is already on the decline, numerous bugs have not inspired confidence, and many developers have stopped contributing altogether. Lightning Network continues to be an interesting use of valid Bitcoin smart contracts, but unless someone can figure out a solution to its many problems, it might remain a niche for hobbyists rather than the global revolution it was once believed to be.
