Making sense of Lightning network nodes and money transmission licensing

An update on Coin Center’s work to avoid unnecessary regulatory burdens on technologists.

The Lightning Network seems to be getting closer to production. This is a promising scaling solution that could greatly reduce the cost, latency, and energy use of Bitcoin transactions.

We have received some questions about the regulatory obligations that participants in the Lightning Network may face. While this is still a gray area, Coin Center has been working for years to ensure that non-custodial roles in cryptocurrency networks, such as Lightning nodes, do not need money transmission licenses.

The reasoning is simple: A Lightning node cannot lose or run away with a user’s money. As a result, Lighting nodes present little to no risk to consumers and so should not require licensing.

Coin Center director of research Peter Van Valkenburgh explains:

And a similar analysis goes for anti-money-laundering obligations under the federally-enforced Bank Secrecy Act. We’ve previously written about that here.

Based in Washington, D.C., Coin Center is the leading non-profit research and advocacy center focused on the public policy issues facing cryptocurrency and decentralized computing technologies like Bitcoin and Ethereum. Our mission is to build a better understanding of these technologies and to promote a regulatory climate that preserves the freedom to innovate using permissionless blockchain technologies.