Bitcoin is the FED’s new favourite topic. Fresh from the Federal Reserve Bank of St. Louis measuring inflation in BTC terms, comes the Federal Reserve Bank of Cleveland with a examine titled “The Lightning Network: Turning Bitcoin into Money.” A thorough investigation that sadly solely “covers the period January 1, 2017, to September 5, 2019,” their conclusions are removed from stunning.
“We find a significant association between LN adoption and reduced blockchain congestion, suggesting that the LN has helped improve the efficiency of Bitcoin as a means of payment. This improvement cannot be explained by other factors, such as changes in demand or the adoption of SegWit.”
What’s stunning right here, although, is that the FED is wanting into bitcoin’s Lightning Network. And has optimistic issues to say about it. What precisely is happening right here? Let’s examine what they discovered to see if it offers us any clues.
BTC value chart for 07/14/2022 on Timex | Source: BTC/USD on TradingView.com
The FED’s Most Interesting Observations
- “We find that adoption of the Lightning Network has led to a reduction in Bitcoin blockchain congestion and lower mining fees.”
Well FED, that’s precisely the target. Could the “lower mining fees” have an effect on the challenge in the long term as altcoin fanatics like to say? Maybe in 50 to 100 years. For now, the miners’ rewards are assured.
- “We find limited evidence that greater centralization of the network is associated with lower fees.”
Good to know, FED!
- “Recent episodes of high congestion, especially in early 2021, suggest that the LN is not a panacea.”
In this examine, each little sentence is sourced… apart from this one. Why is that, FED?
- “Less blockchain congestion may mean lower barriers to arbitrage across cryptocurrency exchanges, thereby improving market liquidity.”
Notice the “may” there, this isn’t assured. And it’s the least attention-grabbing factor about The Lightning Network.
- “Bertucci studies a strategic model of network formation and shows that competition between nodes prevents the network from becoming highly centralized.”
Take that, altcoiners! Even the FED is aware of how horrible the “The Lightning Network is centralized” argument is. However…
- “When the network is more centralized, each channel, and each Bitcoin locked into the protocol, is likely to support a higher volume of payments”
Good to know, FED. Nobody needs or wants centralization, although.
Observations About The Bitcoin Network As A Whole
- “Total fees attached to payments waiting in the mempool have fallen since 2017, suggesting either lower demand or greater supply of settlement capacity.”
- “Generally, fees have fallen in nominal bitcoin terms.”
No additional feedback on these ones.
Questionable Observations In The FED’s Study
- “By reducing fees, the LN reduces the incentive for Bitcoin miners to use large amounts of computing power, meaning less energy use and positive consequences for the environment.”
The Lightning Network implies a a lot a lot a lot decrease vitality consumption as a result of it doesn’t require mining. However, the bitcoin community and PoW mining is the atmosphere’s greatest buddy, as this other study clearly shows.
- “While this paper focuses on Bitcoin, the same technology can allow other cryptocurrencies to be widely used, secure, and decentralized.”
Stop it, FED. The bitcoin community is the one decentralized one. Altcoins might be many issues, however decentralized isn’t considered one of them.
The Study’s Unsurprising Results
- “Our results suggest that the Lightning Network can help Bitcoin achieve greater scalability, allowing it to operate better as a payments system.”
Once once more, that’s precisely the target. It’s good that even the FED admits that it really works as meant, although.
- “An increase in the number of LN channels reduces the mempool count.”
It’s good to keep in mind that each channels and network capacity are at an all-time high.
- “Network centralization does not have a clear effect on the efciency of the network.”
Good, however no person needs centralization anyway.
- “If, during 2017, the LN had existed and been the size it was at the end of our sample, by how much would Bitcoin congestion have been lowered? Our results suggest that the mempool count would have been 93 percent lower, mempool fees 96 percent lower, and the proportion of low fee transactions 197 percent higher.”
Those are promising numbers, to say the least.
- “Our findings suggest that the off-chain netting benefits of the Lightning Network can help Bitcoin to scale and function better as a means of payment.”
Even the FED is aware of this.
- “Data are not available on how Bitcoin is used, so we cannot say for sure whether Bitcoin is being increasingly used as a means of payment.”
It is, although. And that is simply getting began.
- “The Lightning Network loosens a key technological constraint by allowing payments to be settled more quickly.”
Yep, that’s precisely the target.
And that’s it. It’s loopy how this FED examine and the previously analyzed blog submit arrived at such totally different conclusions. Are we coping with a superb cop/ dangerous cop state of affairs right here?
Featured Image: The FED's study cowl picture | Charts by TradingView