Lightning Network Messaging’s Potential Impact on Routing Fees
A Market Sizing Exercise to Explore the Impact of the Lighting Network Messaging on Routing Fees Earned
The combination of Type-Length-Values (TLVs) and Keysend have paved the way for Lightning based messaging services to emerge such as Sphinx Chat, Juggernaut and SendMany. Lightning messaging works simply by attaching a message or other data to a lightning payment. Messaging over Lightning from a privacy standpoint is vastly better than centralized services such as Whatsapp and Telegram as it provides end-to-end encryption, censorship-resistance, peer-to-peer messaging and payments.
In this paper I will explore the potential impact on routing fees earned in the Bitcoin Lightning network with the introduction and adoption of Lightning based messaging services through a market sizing exercise. To play the assumptions in the model demonstrated in this article click here.
Market Sizing Walk-through
Total Size of Global Messenger Apps
According to an analysis published on Statista there are roughly 5.9 billion unique monthly active users of global messenger apps. WhatsApp and Facebook messenger currently dominate the market. We will use this number as the starting point to define the total size of the addressable market.
Now that we’ve established the basis of 5.9 billion monthly active users of messenger apps, we will drill this down further to quantify total daily unique users by making an assumption that 30% of all users are daily users. This leaves us with an assumption of 1.7 billion daily active users of global messenger apps. Next, we want to figure out the average number of messages sent globally per day. An article I found about WhatsApp usage concluded that on average, users sent 144 messages per day. For my analysis I took a more conservative approach and made the assumption that users send on average 100 messages per day. This translates to 177 billion messages sent globally per day through these apps. This assumption can be sensitized in the analysis.
Bitcoin’s Stake in the Global Messaging Market
Now that we’ve established some baseline assumptions about the market size and usage of messaging apps we can move onto the Bitcoin side of the equation. To start I made an assumption that within the next 3–5 years Bitcoin would be able to capture 0.25% of the total market for messaging. I tried to err on the side of conservatism with this assumption and it can also be sensitized in the model. Based on this market capture assumption Bitcoin would have 4.4 million daily active messaging users. Now if you apply the same assumption from above that on average users send 100 messages per day you get 440 million messages sent daily over the Lightning Network.
One thing to keep in mind with sending messages or transactions over Lightning is that in order for you message or transaction to be received by the intended user it will need to be routed through the network, which has a cost implications unless you have a direct channel with that user. So next we’ll quantify what number of users are sending messages with a direct connection as that will have implications for routing fees earned in the network. To do this I made the assumption that 5% of all users sending messages over Lightning run their own node and that anyone running their own node will have direct channels with the individuals they message. This translates into 221,813 users running their own node. Currently there are 12,577 active Lightning nodes according to 1ml. This assumes roughly 1,700% growth in the number of active lightning nodes over the course of 3–5 years, which may be an aggressive assumption. Again this percentage can also be sensitized in the analysis.
Now that the number of users running their own node has been established we can simply multiply that number by the average number messages sent per day, which we’ve determined is 100 and then subtract that from the calculated total number of daily messages, which was 440 million to arrive at an estimated number of 421 million messages that will be routed through the network on a daily basis.
And finally with this we can begin to quantify the potential for routing fees to be earned through the growth and adoption of Lightning messaging. Using an assumption of an average 2 satoshi routing fee and the current price of bitcoin at $9,200 as of the time of writing you can see the routing fee earning potential in the chart below.
Sensitivity Analysis
Scenario 1 — Avg. Routing Fee of 3 Satoshi’s
Scenario 2— Avg. Routing Fee of 3 Satoshi’s and Market Capture of 0.50%
Scenario 3— Avg. Routing Fee of 5 Satoshi’s and Market Capture of 1%
Scenario 4— Avg. Routing Fee of 5 Satoshi’s and Market Capture of 10%
Scenario 5 — Avg. Routing Fee of 10 Satoshi’s and Market Capture of 50%
Feel free to play with model and make your own assumptions here.
Conclusion
The introduction of messaging applications built on top of the Lightning Network may be the killer application we’ve all been waiting for. Certainly the growth and adoption of these applications will have meaningful impacts on the market dynamics of running routing nodes within the network. Based on the assumptions presented in this analysis it may be safe to theorize that as the number of transactions increases within the network competition for routing will cause increases in the fees charged by nodes as they will need to manage capital and liquidity more aggressively. An increase in routing fees could in hand incentivize more people to run their own node to reduce fees, which would be a positive for the network and improve decentralization and resiliency. In any event it will be interesting to watch how this all unfolds and it’s amazing to see breakthrough applications being built on Lightning.
Go check out these Lightning messaging applications:
