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

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

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

Although the total liquidity of the Lightning Network is less than 0.5% of the ETH in DeFi contracts, the uptrend of LN Bitcoin capacity compared to the downtrend of the amount of ETH locked in smart contracts is encouraging for the development of LN.

Total ETH locked in DeFi contracts (top) and total BTC in Lightning Network channels (bottom). Source: Defillama

While liquidity on LN is constantly growing, the number of peer-to-peer channels dropped sharply in November after the FTX crash. This may be due to the churn of miners running on LN nodes other than mining clients.

However, the likely end of miner capitulation and the emergence of bitcoin-based applications such as NFT could mean the end of the LN channel capitulation. Since the beginning of 2023, more than 2,000 new channels have been added to the network.

The number of Lightning Network channels. Source: glass knot

Valkyrie Investments report declared that LN adoption is gaining momentum in emerging markets such as South America and Africa, primarily driven by the efforts of LN’s mobile payment application, Strike.

In December 2022, the firm launched an LN-based money transfer service in Africa. The service offers free transfers from the US to Africans in Nigeria, Ghana and Kenya. Strike later 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 their Strike cash balance to savings and VISA-enabled accounts. The app will convert USD to BTC in the background and convert to USD at the destination. Since LN is fast and cheap, the risk due to Bitcoin price volatility is minimal.

International payments from the US can cost as much as $45 per transaction, and transfers take hours and sometimes days. Thus, users may begin to prefer strike-based payments over traditional money transfer channels.

Recent report from Marty Bent found that LN payments have grown this year on the best Lightning Network wallets, Wallet of Satoshi. Moreover, the podcasting platform Podcasting 2.0, which accepts LN payments, has also seen an increase in tips sent to creators.

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Nostr promotes LN adoption

Another factor driving LN adoption is the launch of Nostr. According to the Github protocol page, Nostr is a simple, open protocol that enables global, decentralized, and censorship-resistant social networks. The protocol allows you to create applications for social networks based on it.

Twitter-like Damus is bringing Nostr to IOS and Android apps. The idea of ​​an open and free social media network resonates most strongly in the crypto space. Bitcoin pioneers such as Jack Dorsey and Adam Back have strongly supported Nostr.

In addition to the similarities in ideology, Nostr can facilitate the adoption of LN as Damus has integrated various LN wallets such as Wallet of Satoshi, Strike, BlueWallet and others. Report by LN analyst Kevin Rook, quoted that over 600,000 users have signed up for Nostr. This may help LN onboard users as Nostr natively supports the Bitcoin payment network via Nostré Zap.

The Lightning Network is a neutral protocol built on top of Bitcoin, with no token attached to it, thus avoiding speculation. There is potential income for LN nodes in the form of fees for facilitating transactions and providing liquidity. However, in the current state, earnings are negligible. Thus, the growth of the Lightning Network seems organic and well positioned to become the leading global payment network, which has been done by prominent figures in the field. predicted.

The views, thoughts and opinions expressed here are those of the authors only and do not necessarily reflect or represent the views and opinions of Cryptooshala.

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

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