Visualizing Bitcoin Lightning Network growth and Taproot upgrade explained

What is Lightning Network? (ELI5)

Lightning Network is a decentralized layer-2 network protocol that uses a native smart contract scripting language to enable instant, almost feeless Bitcoin payments.

On the Lightning Network, both parties to a transaction are required only to have a sufficiently funded open channel on the network. This is done through a single on-chain transaction.

If there is a direct channel open between the parties, the transaction is routed directly and incurs zero fees. Without a direct channel, the transaction is routed through routing nodes.

Whan a transaction passes through a routing node, it is referred to as a "hop". There are currently 23k nodes on the Lightning Network with 13k nodes having active channels.

Three years ago, Lightning Network was admittedly far from ideal.

Lightning Network Node Map (March 2018)

But the network has seen exponential growth since, particularly this year. Lightning Network is now nigh-on a fully functional global payments network secured by the Bitcoin blockchain. Lightning wallets have also come a long way and are now very intuitive to use for the average user.

Lightning Network Node Map (July 2021)

Network capacity has doubled this year. Likewise, nodes and channels have grown exponentially, reducing the number of hops, channel lifespan and fee incurred for hops through routing nodes.

Lightning Network channel capacity has doubled this year

The growth of the Lightning Network has inspired some pretty cool developments this year,

Following the success of the Bitcoin beach project, a pilot for Lightning Network's viability as MoE, El Salvador has adopted Bitcoin as legal tender.

Other countries like Tonga, Colombia and a few other LatAm countries have expressed interest to follow suit.

Twitter will launch a tipping system on its platform later this year using the Lightning Network.

1 satoshi sent from Spain to Tokyo today for 0 fees

Taproot

Now with Lightning Network's maturation as an instant, almost feeless, infinitely scalable decentralized global payments network, Bitcoin is shifting focus to its next big milestone, Taproot.

Taproot brings a set of protocols that further enhance Bitcoin's scalability through even more efficient use of block space by introducing a new type of output - Pay to Taproot (P2TR).

P2TR uses Schnorr signatures, which are more compact than the conventional Elliptic Curve Digital Signing Algorithm (ECDSA) signatures. Schnorr signatures are between 6 and 9 bytes shorter than ECDSA.

An even more exciting aspect of Schnorr signatures is that it enables the aggregation of multiple signatures into a single signature. This opens up infinite possibilities, including being able to execute multi-sigs and L2/sidechain smart contracts as a simple regular transaction on-chain.

It's a truly game-changing development, as it allows Bitcoin to have smart contract protocols without bloating the blockchain layer.

Taproot also includes optimization for the Lightning Network called Point Time-Locked Contract(PTLC). PTLC replaces Hash Time-Locked Contract(HTLC). PTLC uses adaptor signatures which enhance privacy and security on the Lightning Network, enable escrow contracts in Lightning channels and allow users to retry stuck payments.

Curfew cocktail bar in Copenhagen, Denmark accepting its first Lightning payment