OKX Insights takes an in-depth look at the current state of Lightning Network adoption and how gaming is positioned to draw in new users from outside the cryptocurrency industry.
After launching to much fanfare in the wake of Bitcoin transaction fees hitting their historic highs in 2018, interest in the Lightning Network has quieted down considerably. However, just because Bitcoin’s premier scaling solution is not constantly in the news does not mean its ecosystem is stagnant.
In this OKX Insights article, we look at the Lightning Network’s growth over time and consider how the network’s design complicates analysis. We then turn our attention to those building on the network — particularly in the small but rapidly expanding Lightning Network gaming sector — and consider how the monetization of video games could drive both Lightning Network and wider Bitcoin adoption.
The current state of Bitcoin’s Lightning Network
For reasons we’ll explore shortly, accurate statistics reflecting Lightning Network usage are difficult to come by. However, data from BitcoinVisuals suggests that the Bitcoin scaling solution is growing steadily.
After adding more than 1,580 nodes during August 2020 alone, the number of Lightning public nodes stagnated at around 7,600 in September and October. New public Lightning nodes with live channels started to come online again during the end of 2020 and into 2021. On Nov. 1, there were 7,646 nodes. By February 2021, that number had grown by more than 19.8% to 9,167.
Another initially impressive statistic is the Lightning Network’s overall capacity. In dollar terms, value locked in the Lightning Network exploded from around $8.5 million this time last year to more than $52 million by the end of February 2021 — a 512% increase.
However, the fiat figure paints a distorted picture. The growth of the number of BTC on Lightning has been less spectacular. In February 2020, a total of 886 BTC was locked on the network. A year later, that number has risen by 23.5% to 1,095 BTC. Naturally, the leading cryptocurrency’s recent price growth accounts for the discrepancy between the dollar and BTC figures.
While the Lightning Network only recently experienced an all-time high capacity in fiat terms, the combined number of BTC on the network peaked at 1,128 last October. At the time, the BTC price was just above $10,000 — putting LN’s total fiat capacity at around $11.89 million.
It is also worth noting that the Lightning Network’s current capacity is just 10 BTC more than the 1,085 BTC on the network in May 2019. Around six months before, the Lightning Network supported slightly over 107 BTC. Evidently, growth in total value locked has slowed considerably after an early rush.
Yet, in a recent AMA with OKX, Lightning Labs’ business development lead, Ryan Gentry, stated that a consistent capacity doesn’t tell us much about overall adoption:
“The total capacity in the network could remain relatively constant, while the actual activity among the lanes (i.e., the roads) grows rapidly. In this latest Bitcoin run-up, many Lightning routing nodes, services and merchants are seeing their routing/payment volume in the network steadily increase.”
Data provided by custodial wallet provider and node operator Wallet of Satoshi seems to support Gentry’s claims. On Dec. 21, 2020, the company tweeted that its users had made 700,000 Lightning Network payments since the application’s early-2019 launch. Just one month later, it claimed to have facilitated another 100,000 payments.
The difficulties in analyzing the Lightning Network
Unlike Bitcoin’s public transaction history, Lightning Network payments occur in channels away from the main chain. Only the transactions used to fund and close channels are broadcast to the blockchain. As noted in a 2019 study by the Norwegian University of Science and Technology, only a node operator themself can see the true volume of transactions flowing through their own channel. Appeals from the United States Internal Revenue Service’s Criminal Investigation Division for assistance in tracking Lightning Network transactions in June 2020 are telling of just how opaque value flows through these channels are.
Complicating the analysis is the fact that not all nodes are publicly visible. Those nodes hoping to route payments need to advertise their presence and total capacity to the rest of the network. Node operators only wanting to send and receive payments can set up private channels. Often, their nodes — and their total capacity — are invisible to the network.
In fact, many Lightning Network users are actively discouraged from running a public node. In a Medium post describing best practices, Pierre Rochard, co-founder of the Satoshi Nakamoto Institute, describes how poorly maintained nodes waste network resources, increase the likelihood of routing failures and can reduce privacy. He claims that “a node that is not reliably online or not rebalancing its channels should be non-routing and should not have public channels.”
Lightning adoption is tough to quantify
Assessing Lightning Network user adoption is an equal challenge.
Custodial Lightning wallets are, by far, the easiest way to access the network. Yet, they give no concrete figures regarding adoption. Every service offering a custodial wallet should operate at least one Lightning node, but the actual number of users supported is unclear.
While not providing figures, data from OpenNode’s own node — one of the network’s largest — suggests a large number of users favor custodial wallets. In a Q1 2020 report, the BTC payments company analyzed the more than 120,000 Lightning Network transactions it had node-routed since its November 2018 launch. Around 37.5% of them involved either BlueWallet or Wallet of Satoshi — both custodial wallets. Admittedly, the figures are roughly one year old, but with such data relying solely on its voluntary disclosure by well-connected, high-traffic nodes, more recent analysis is lacking.
The total channel capacities of those public nodes operated by leading custodial Lightning Network wallets may provide more up-to-date clues to overall Lightning adoption. Data from HashXP shows three public nodes with the alias “Wallet of Satoshi” currently have a combined capacity of around 37.4 BTC. Tippin.me, a Lightning web wallet, shows another large total capacity of 9.89 BTC. Meanwhile, Zebedee, a third custodial wallet, has a nontrivial capacity of almost 4 BTC.
These large node capacities are not necessarily indicative of high user-counts. However, when considered alongside OpenNode data, growth in the number of nodes with public channels and anecdotal evidence from the likes of Ryan Gentry, they seem to support sizable overall Lightning Network adoption.
What’s driving Lightning Network adoption?
Improved security and functionality
Ongoing software updates to leading Lightning Network implementations have increased both its security and utility.
For example, a recent Lightning Labs update to its LND implementation introduced Anchor Output Channels. The current version allows potential victims of the much-publicized but never executed Flood & Loot attack and other vulnerabilities to increase transaction fees when closing a channel. This gives them the chance to settle their channel before the attacker sweeps their balance. While not exactly patching known vulnerabilities, such updates do mitigate the risk of losing funds to an attacker.
Similarly, the introduction of so-called wumbo channels not only increases the Lightning Network’s utility by removing the cap on a channel’s total capacity but is a reflection of steadily growing confidence in the network’s security. For much of its relatively short existence, Lightning Network’s Basis of Lightning Technology specification limited maximum channel capacities to just over 0.1677 BTC. Meanwhile, payments themselves were capped at around 0.043 BTC.
In 2020, LND, eclair and c-lightning allowed users to voluntarily remove these restrictions. Those opening a channel can now agree whether or not to enforce the still-default limitations or implement higher capacity channels.
Speaking to CoinDesk in August 2020, Elizabeth Stark, CEO of Lightning Labs, commented on the change:
“We view shipping wumbo in LND as a sign that the software has progressed to a certain point where advanced users, companies and node operators can open larger channels. These larger wumbo channels enable a better user experience with larger transactions on the network and more efficient capital usage for startups and node operators.”
In correspondence with OKX Insights, Carlos Borlado, the chief operating officer at Lightning Network game studio Satoshi’s Games, commented that such updates to Lightning Network encourage user adoption:
“The technology has evolved significantly over the last two years, driving an impressive 80% rise in the number of Lightning nodes during 2020. In the last month alone, the number of nodes grew by 7%, and 2021 will surely see a spectacular rise thanks to Bitcoin’s appreciation.”
Along with improved utility and security, a range of newer services now extend Lightning Network access to non-technical users.
Setting up a node was once challenging for a user without a background in computing, and mobile Lightning Network support was limited to custodial options. Today, plug-and-play nodes and user-friendly, noncustodial mobile wallets enable those not able to, or not interested in, operating a full node to use the network while still minimizing trust in third parties.
Jack Everitt, the founder of Lightning Network game design studio THNDR, told OKX Insights that out-of-the-box nodes and noncustodial hosted nodes encourage those with less technical backgrounds to support the network:
“It’s getting easier and easier for consumers to run their own node at home with services like Umbrel, which you can connect to a wallet like Zap. For businesses, there are services like Voltage — a noncustodial hosted node — which we use at THNDR.”
Similarly, mobile wallets, such as Breez and ACINQ’s Phoenix, significantly streamline the user experience and do not require either complex setup or trust in a custodian. Referring to such wallets’ lack of configuration and upkeep demands, Borlado commented:
“Not very long in the future, many gamers will be running nodes on their mobile device with zero cost of attention.”
Further increasing the Lightning Network’s accessibility are companies providing fiat onramp services — such as Zap and Escher. Borlado told OKX Insights how such providers streamline the onboarding of new users:
“Lightning originally required having a previous Bitcoin wallet to fund a new Lightning one, and that two-step process filtered out a good number of new users. Today, that is being eased by new wallets and web services allowing direct funding of a Lightning wallet with a credit card or any cryptocurrency.”
More ways to use the Lightning Network
While BTC’s institutional-driven price run, decentralized finance’s explosive growth and Ethereum’s spiraling fee problem have dominated recent headlines, the Lightning Network has enjoyed a couple of significant adoption stories of its own.
A number of major exchanges, OKX included, have recently added, or announced intent to add, LN support — thereby allowing users to fund accounts without the burden of Layer-1 fees.
Another development that looks likely to drive Lightning Network adoption is Zap’s international rollout of Strike. Powered by the Lightning Network, Strike enables instant, feeless global payments — regardless of the preferred fiat currency of either the sender or receiver.
Prior to its global launch, Strike was only available to U.S. citizens, but it still managed to achieve a five-figure user count in only six months. Now live in more than 200 countries and with the global remittance market expected to grow to around $930 billion by 2026, Strike seems well-positioned to boost Lightning Network adoption — even if the app hides almost everything Bitcoin-related from its users.
Outside of these major stories, Lightning Network acceptance appears to be growing in a number of different sectors. A November 2020 report by Fulgur Ventures counted more than 400 merchants supporting the Lightning Network, with 322 apps having integrated the BTC scaling solution. For perspective, there were just 93 such applications in 2018 and 151 in 2019.
At around a quarter of all related projects, software development tools represented the largest area of Lightning Network uptake. Next came Lightning finance — or LiFi — at 15.2%, followed by Lightning gaming at 14.6%. Other sectors mentioned included micro-earning, sat stacking, tipping and wallet software.
Although difficult to quantify, some believe that most new Bitcoin users will actually be onboarded through the Lightning Network. Indeed, the combination of improved user experiences, greater accessibility and more potential uses appears to be increasing the network’s appeal to a wider audience.
Referencing the proliferation of Bitcoin dollar-cost-averaging services and micro-earning opportunities, Everitt from THNDR told OKX Insights that he believes the next “wave of Bitcoin adoption will be through Lightning Network.” He added:
“Most of the stacking sats websites and services pay users via Lightning, so the pay-outs can be small and incur near-zero fees. The user acquisition efforts of these services are focused on onboarding new users to Bitcoin. Potentially, sites where you earn BTC will be the first jumping-off point for someone new to Bitcoin.”
Onboarding new BTC users via Lightning Network gaming
While it is clear how near-free and instant international transfers, like those offered by Strike, can disrupt the payments industry, the Lightning Network also looks set to revolutionize less-obvious sectors — among them, the multi-billion-dollar gaming and esports markets.
Like how the internet changed many aspects of video gaming, Bitcoin’s scaling solution now looks poised to do something similar. Borlado explained to OKX Insights more about the Lightning Network’s potential to transform the gaming industry via the availability of liquid BTC:
“Although the change from in-game tokens to liquid Bitcoin may look somewhat subtle, it actually represents a total change of paradigm, both for users and developers. Having a lot of illiquid tokens retained within their respective closed applications will always have way less appeal than just one single balance of interoperable real money you can use anywhere. Users are clearly showing this to us.”
A growing number of games already support Lightning Network payments in some capacity.
THNDR’s Bitcoin Bounce is a simple-yet-addictive auto-scrolling platformer in which gamers control an orange Bitcoin logo bouncing along a blockchain. When playing Bitcoin Bounce, mobile gamers collect tickets for a daily prize draw. The title is entirely free to play, with advertising revenue contributing to the prize pool. The top jackpot each day is 10,000 satoshis — currently less than $5 — and the smallest pay-out is just 10 sats. Awarding prizes of less than a penny would be simply impossible using Layer-1 transactions or legacy payment systems.
Everitt told OKX about the decision to monetize Bitcoin Bounce using the Lightning Network:
“I believe that Bitcoin is the only network that is truly decentralized money. The games we make at THNDR reward users with real money prizes, so Bitcoin is the obvious fit. Lightning also has the advantages of being almost instantly settled with near-zero fees. Both are important features for gaming.”
Getting paid to slay
Taking a different approach to monetizing video gaming is Satoshi’s Games. After receiving positive feedback for their early 8-bit titles, like Lightning Agar and Bcraft, the studio set about building its flagship title, Light Nite.
Light Nite is a multiplayer online battle-royale inspired by the hugely popular Fortnite. However, in Light Nite, almost every decision has financial consequences. Slain characters drop real satoshis for their opponents to collect wherever they fall. At the end of a round, players can either withdraw their loot to their own wallet via the Lightning Network or spend it on in-game items at the Light Nite store.
In-game items are minted as nonfungible tokens on Blockstream’s Liquid sidechain. Liquid assets — such as weapons, vehicles and clothing — are tradable and can be imported into any compatible title.
Borlado commented to OKX Insights on the unique gameplay elements such as in-game items and other Lightning developments bring to titles:
“New services and layers being built over the Lightning Network, such as LSAT or RGB, promise incredible functionality to the gaming ecosystem — such as owner traceability, co-ownership, parental control and, overall, a much more flexible and powerful economy of users’ engagement in games.”
Notably, Satoshi’s Games does not require gamers to pay with BTC when buying Light Nite. Debit and credit cards are accepted, so as not to discourage any would-be players from enjoying the game.
Borlado told OKX Insights how such a low barrier to entry for gamers not already familiar with Bitcoin helps to promote Lightning Network adoption:
“Users don’t need any particular knowledge about Bitcoin or the Lightning Network to get started in the Light Nite game. In fact, they can use their regular credit card to buy the alpha access or get their first skins in the game. Then, as soon as they start playing and getting scores over a threshold, they start earning their first sats in the in-game wallet.”
He went on to describe how these first satoshis will lead a player to eventually create a wallet outside of the game to which they can withdraw their earnings. From there, their comfort will grow to the point that using BTC on Lightning will become completely natural.
Borlado told us that early interest in Light Nite has been “surprisingly high.” With an appealing and already proven gameplay concept, as well as Satoshi’s Games’ efforts to make Light Nite accessible, the title could serve as a powerful lure to bring in new Lightning Network users from outside of the cryptocurrency industry.
A similar effort is DonnerLabs’ Bitcoin Bounty Hunt. Like Light Nite, the first-person shooter is still under development, but a beta version is currently live. Each in-game point — known as a Bounty — is worth a single satoshi, and the title also includes a built-in noncustodial wallet to which users can send funds following matches.
Supercharging smash hits with the Lightning Network
While efforts like Bitcoin Bounce, Bitcoin Bounty Hunt and Light Nite introduce previously impossible features to gaming, for now, at least, they lack the kind of mass appeal enjoyed by the industry’s biggest titles. The gaming market is hugely competitive, making it difficult for niche independent studios to attract new users.
Hoping to change this is Zebedee. The company’s first product was a custodial Lightning Network wallet designed especially for gaming. At the end of 2020, Zebedee announced Infuse — a platform aiming to monetize some of the most popular existing games with the Lightning Network.
The first game supported by Zebedee’s Infuse is the hugely popular Counter-Strike: Global Offensive. After downloading the Infuse software, gamers connect their Steam account and choose an “Infused Server” from the list of public servers. Entrance fees to matches are paid via a gamer’s Zebedee wallet and the funds collected from players form the match’s prize pool. Rewards are distributed according to each player’s final score.
Zebedee is appealing to gamers to suggest additional titles that they would like to see added to Infuse — but, for now, CS:GO is the only game available on the platform. The title’s massive popularity makes it a strong choice to showcase the Infuse system, drive interest in Lightning Network gaming and promote further adoption.
Over a decade since its release, CS:GO continues to attract more than a million gamers each month. Zebedee is hoping that some of them will find the idea of playing for real money appealing. Indeed, if a well-followed Twitch streamer were to showcase the unrivaled functionality Infuse brings to one of the most popular video games of all time, the Lightning Network would surely see a large boost in adoption.
Supporting the indie industry
Efforts like Infuse and titles such as Bitcoin Bounce, Lightnite and Bitcoin Bounty Hunt give an early impression of how Lightning Network might eventually revolutionize monetization in video gaming. However, it is not just the gameplay itself that can benefit from Bitcoin’s scaling solution.
Elixir, an application by Satoshi’s Games that is still in beta testing, serves as a one-stop-shop for gamers and video game developers alike. The platform provides a marketplace to buy games and trade game-related content — like items, weapons and skins. Meanwhile, developers can use the application to organize crowdfunding campaigns. Those building the next generation of Lightning games can advertise their ideas, set a funding goal and reward contributors all from within Elixir.
Spreading the word about Lightning gaming
Helping to promote the early Lightning Network gaming industry is MintGox. The esports group focused on Bitcoin-based video games originally launched its regular online gaming sessions in March 2020 as a way to stave off the boredom of global coronavirus lockdowns.
MintGox#001 was attended by over 100 gamers who made more than 1,000 Lightning transactions between them. The main event was an esports fighting competition on VFC: Virtual Fighting Championship. Spectators could display messages on the screen for a fee in satoshis, and each message would drop a bomb onto the fighters. Enabling the crowd to influence the eventual result blurred the line between participant and spectator in a way not possible without the Lightning Network.
Since the opening night, MintGox has continued to unite Lightning Network gamers and developers once a month. By the end of 2020, the tournaments were attracting much greater interest. More than 5,200 spectators attended MintGox#010 and the event saw in excess of 10,000 transactions made. The combined prize pool for the December edition was an impressive 0.1 BTC.
Further promotion of the Lightning Network video game ecosystem comes from within the mainstream competitive gaming industry. In February 2021, OpenNode announced that professional esports team Mazer Gaming was now a user of its products. Sam Kijak, the team’s founder, commented on Mazer’s decision to integrate Lightning support:
“We are very excited to be partnering up with OpenNode to bring Bitcoin payments and payouts to our esports tournaments and eventually the esports industry as a whole. We are strong believers in pushing out Bitcoin adoption and integration to our community and believe this is a big step toward achieving that.”
Lightning gaming’s own adoption challenges
Supported by a rapidly expanding ecosystem of titles, tournaments and developers, the future looks bright for Lightning Network gaming. However, adding support to games is not without challenges. Everitt talked OKX Insights through some of them:
“Adding Bitcoin to a game is exactly the same as adding any monetary prize — e.g., cash, gift cards, etc. Adding real prizes has common problems. Firstly, the games become a honey pot for cheating, which can ruin the experience for legitimate players. Secondly, App Store and Google Play rules limit the options for adding real money prizes to games. It is generally not allowed to reward players money or allow wagers, depending on the store. Finally, adding Bitcoin prizes adds friction to onboarding a new user into the experience.”
Despite the challenges, the already vibrant but still-niche Lightning Network gaming sector provides a real-world example of the industry-changing power of a viable decentralized micropayments system. Instant and near-free transactions allow developers to introduce features never previously possible. From backing your skills on the battlefield with satoshis to selling items for a currency with utility outside of the game itself, companies like THNDR, Satoshi’s Games, DonnerLabs and others are reimagining what it means to monetize gaming.
Although impossible to accurately quantify, efforts like MintGox and interest in Lightning Network from the likes of Mazer Gaming will surely have already attracted some esports enthusiasts to explore the small but growing catalog of existing games with Lightning Network support. With potentially massive titles like Light Nite still awaiting their full release and Zebedee’s Infuse promising to bring Lightning Network payments to hugely popular existing games, gaming appears well-positioned to extend the network’s appeal beyond the digital currency industry.
Borlado told OKX Insights about Satoshi’s Games’ optimism for the coming year, explaining that the team “foresees during 2021 that Bitcoin games and Lightning are going to get far more attention than past years.”
Indeed, the mainstream global esports market is expected to be worth more than $1.5 billion by 2023. That is around 2,900% larger than the entire Lightning Network capacity, today. If the groundbreaking features of Lightning Network-supported games continue to win new fans, this year might well see it absorb a chunk of that figure — along with many new users.