There are many ways to measure the value of bitcoin, but most proponents of the decentralized cryptocurrency agree that the more people use it, the higher its value will be.
One of the reasons bitcoin’s market capitalization is only $145 billion is that not many people are using it as currency. While millions have opened accounts at popular bitcoin exchanges like Coinbase, few actually transact in it, except for speculation. At the moment, the number of confirmed transactions on the network is around 200,000 per day, which is about half of the network’s capacity.
But even if bitcoin gains more users as a decentralized currency independent of the banking system and not just as a means of speculation, the current network capacity (400,000 to 500,000 transactions per day) will be too low, too slow, and too expensive in the long term.
“If this truly becomes a global currency we use for transactions of any size, and if we promise people they will be able to do micropayments … then we need to have scalability,” said Christian Decker, core tech engineer at Blockstream, a blockchain technology company that supports the main version of bitcoin, Bitcoin Core.
Blockstream, based in San Francisco, is one of three companies working on the next-level solution for bitcoin scalability, called the Lightning Network. Other major players are French company Acinq SAS and San Francisco-based Lightning Labs.
The open-source Lightning Network, which does not have one simple application for the wider public yet, is a second-layer network built on top of the original old and slow bitcoin blockchain. Right now, the network has about 1,700 expert users, according to Decker, mostly computer programmers.
Users can fund accounts on the Lightning Network using bitcoin, which remain on the blockchain and don’t move. Transactions on the Lightning Network are done off the bitcoin blockchain, making it competitive with traditional credit cards and banks in terms of speed and cost.
The network is capable of processing millions of transactions per second, and fees are proportional to the payment amount, so they may be only a fraction of a cent. This is different from the bitcoin network, where even small transactions can be expensive because they are proportional to the data used in the transaction, not the amount of money sent.
“Right from the get-go, I always wanted bitcoin to be a currency first and foremost—not some safe haven where I can store my money,” said Decker.