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A Tale of Two Layers: The Mutual Relationship between Bitcoin and Lightning Network

Stefano Martinazzi (), Daniele Regoli () and Andrea Flori ()
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Stefano Martinazzi: Department of Management, Economics and Industrial Engineering, Politecnico di Milano, 20121 Milan, Italy
Daniele Regoli: Data Science and Artificial Intelligence, Intesa Sanpaolo, 20121 Milan, Italy
Andrea Flori: Department of Management, Economics and Industrial Engineering, Politecnico di Milano, 20121 Milan, Italy

Risks, 2020, vol. 8, issue 4, 1-18

Abstract: A major concern of the adoption and scalability of Blockchain technologies refers to their efficient use for payments. In this work, we analyze how Lightning Network (LN), which represents a relevant infrastructural novelty, is influenced by the market dynamics of its referring cryptocurrency, namely Bitcoin. In so doing, we focus on how the LN is efficient in performing transactions and we relate this feature to the market conditions of Bitcoin. By applying the Toda–Yamamoto variant of Granger-causality, we note that market conditions of Bitcoin do not significantly influence the topological configuration of the LN. Hence, although the LN represents a second layer on the Bitcoin blockchain, our findings suggest that its efficient functioning does not appear to be related to the simple market performance of its underlying cryptocurrency and, in particular, of its volatile market fluctuations. This result may therefore contribute to shed light on the practical usage of the LN as a blockchain technology to favor transactions.

Keywords: bitcoin; lightning network; granger causality; market efficiency; global efficiency (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 M2 M4 K2 (search for similar items in EconPapers)
Date: 2020
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