Bitcoin Lightning Network growth is organic, coming from real-world adoption

Market Analysis

The capacity of Bitcoin’s Lightning Network (LN) recently surpassed an all-time high of 5,000 Bitcoin (BTC). 

The Lightning Network is a neutral protocol built on top of Bitcoin, and it currently does not have a “native” token attached to it like many decentralized finance (DeFi) platforms.

Although the Lightning Network’s total liquidity is less than 0.5% of the Ether (ETH) in DeFi contracts, the uptrend in Bitcoin’s LN capacity versus a downtrend in the amount of ETH locked in smart contracts is encouraging for LN development.

Total ETH locked in DeFi contracts (top) and total BTC in LN channels (bottom). Source: DefiLlama

While the liquidity on the LN has been rising consistently, the number of channels on the peer-to-peer network dropped drastically in November following the FTX collapse. It could be due to an exodus of miners operating LN nodes besides running mining clients.

However, the likely end of miner capitulation and the rise of Bitcoin-based applications like nonfungible tokens could mark an end to LN channel capitulation. Since the start of 2023, over 2,000 new channels have been added to the network.

Lightning Network number of channels. Source: Glassnode

A Valkyrie Investments report states that LN adoption is picking up speed in emerging markets like South America and Africa, primarily due to efforts of the LN mobile payment application Strike.

In December 2022, the firm launched an LN-based remittance service in Africa. The service offers no-cost transfers from the United States to Africans in Nigeria, Ghana and Kenya. Later, Strike announced a similar program in the Philippines.

LN capacity and important chronological events. Source: Valkyrie

More recently, the firm announced dollar payments using LN, where users can potentially send dollars from the Strike’s cash balance to savings and Visa-enabled accounts. The app will convert U.S. dollars to BTC in the background and convert to dollars at the destination. Since LN is fast and cheap, the risk due to Bitcoin’s price volatility is minimal.

The cost of international payments from the U.S. can reach as high as $45 per transaction, with transfers taking hours or sometimes days. Thus, users may start preferring Strike-based payments over traditional remittance channels.

A recent report from Marty Bent found that the LN payments have risen this year on one of the top Lightning Network wallets, Wallet of Satoshi. Moreover, Podcasting 2.0 — a podcasting platform that accepts LN payments — also recorded an uptick in tips sent to creators.

Related: Retail giant Pick n Pay to accept Bitcoin in 1,628 stores across South Africa

Nostr is boosting LN adoption

Another factor influencing the adoption of LN is the launch of Nostr. According to the protocol’s GitHub page, Nostr is a simple, open protocol that enables global, decentralized, censorship-resistant social media. The protocol allows social media applications to be built on it.

Damus, a Twitter competitor, is built on Nostr and has an iOS and Android application. The idea of an open, free social media network reverberates strongly in the crypto space, with Bitcoin pioneers like Jack Dorsey and Adam Back having strongly endorsed Nostr.

Besides their similarities in ideology, Nostr can boost LN adoption, as Damus has integrated various LN wallets like Wallet of Satoshi, Strike, BlueWallet and others. According to a report from LN analyst Kevin Rooke, over 600,000 users have signed up for Nostr. This could help onboard users to LN, as Nostr supports the Bitcoin payment network through Nostr Zap.

While the LN does not have a native token, there is a potential for LN nodes to earn fees for facilitating transactions and providing liquidity. However, in its current state, the earnings are negligible. Hence, the Lightning Network’s growth appears to be organic, and it’s well-positioned to become the leading global payment network — as prominent personalities in the space have predicted.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Products You May Like

Articles You May Like

Ripple USD Gains Early Customer Commitments Ahead Of Launch
Litecoin (LTC) at a Crossroads: Can It Rebound and Rally?