For a payment to make its way through the network, it typically has to go through multiple payment channels. To answer how many payments the network can do in a second, we need to understand how many an average channel supports.
Statistics show that the average payment goes through around
The benchmark numbers we will use for this analysis have per-node throughput capacity, not per-channel. Therefore, we will inaccurately assume that each node has just one channel. The default LND node is said to be able to do 33 payments per second with a decent machine (8 vCPUs, 32 GB memory) according to the benchmark.
16,266 nodes in the network (as of November 2022), assuming each payment has to go through three channels (four nodes), the network should be able to achieve around 134,194 payments per second.
That is, each payment has to go through a group of four nodes, and there are 4,066 such unique groups in the network. Assuming each node can do 33 payments a second, we multiply 4,066 by 33 to reach 134,194.
Now, to be realistic: Not every node is running a machine like the one in the benchmark — many are simply running on a Raspberry Pi. Thankfully, it doesn’t take much to be able to beat the current payment systems.
Lightning Vs. Traditional Payments
Finding authentic numbers about the peak capacity of traditional payment systems is hard, so we will rely on their average payment rate throughout the 2021 financial year. We will compare that to the theoretical capacity of Lightning, because conversely, getting the average rate of payments in Lightning is impossible due to its private nature, and is also not revealing of capability because the demand for Lightning payments is still relatively low. This comparison will give us an idea of how many payments a Lighting node needs to be capable of routing in order to out-compete traditional finance.
165 billion payments in 2021, PayPal saw 19.3 billion payments across its whole platform and FedWire saw 204 million. Respectively, these amount to 7,372, 612 and 6.5 payments per second on average for 2021. To put into perspective, Bitcoin did 2.44 payments per second in 2021 and scales up to a maximum of seven per second.
The numbers are promising — it takes each Lightning node to be capable of doing just
four payments a second in order to beat the current payment networks by at least two times. At that rate, 4,066 unique four-node groups can achieve 16,264 payments per second — 2.2 times that of the largest competitor, Visa.
To make matters worse for traditional payment networks, the average Lightning transaction fee is
13 times less that of Visa — 0.1% compared to 1.29%.
It’s worth remembering that one could always continue to scale the Lightning Network by creating new nodes. Since it is peer to peer, its scalability is theoretically unlimited as long as nodes in the network grow.
Further, the aforementioned benchmark by Bottlepay makes the case that there are no real technical blockers for Lightning node implementations to eventually reach 1,000 payments per second. At such a number, the network’s
current throughput would be closer to four million per second, not to mention what it would be with an increase in the number of nodes.
And lastly, it is worth remembering that the Lightning Network is still very much immature software and has a fair amount of future optimizations to be done, both in the protocol and its implementations. Resources in terms of developers are the only short-term constraint to increasing scalability, which has rightfully come second to more important matters like
To give a sense of the progress there,
River Financial recently shared that its payment success rate is 98.7% at an average size of $46, which is astonishingly better than the earliest publicly-available data it could find from 2018, where $5 transactions were failing 48% of the time.
In this piece, we exposed all of the negative drawbacks of scaling the Bitcoin blockchain through increasing the base layer’s block size, most notably severely compromising its decentralization and ultimately failing to achieve its aim of reaching the immense scalability needed for the demands a global payments network has and will continue to increasingly have in the future.
We showed that the Lightning Network, as a second-layer solution, most elegantly solves the scalability problem by both preserving all of Bitcoin’s benefits while at the same time scaling it way beyond what any base-layer solutions promise.
This is a guest post by Stanislav Kozlovski. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.