Bitcoin Lightning Network growth is organic, coming from the real world
The capacity of Bitcoin’s Lightning Network (LN) recently passed an all-time high of 5,000 Bitcoin (BTC).
The Lightning Network is a neutral protocol built on top of Bitcoin, and it does not currently have a “native” token associated with it like many decentralized finance (DeFi) platforms.
Although Lightning Network’s total liquidity is less than 0.5% of 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.
While liquidity on LN has consistently increased, the number of channels on the peer-to-peer network fell drastically in November following the FTX collapse. It may be due to an exodus of miners who run LN nodes in addition to running mining clients.
However, the likely end of miner capitulation and the emergence of Bitcoin-based applications such as non-fungible tokens may mark an end to LN channel capitulation. Since the start of 2023, over 2,000 new channels have been added to the network.
A Valkyrie Investments report says LN adoption is gaining momentum in emerging markets such as South America and Africa, primarily due to 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. Later, Strike announced a similar program in the Philippines.
More recently, the firm announced dollar payments using LN, where users can potentially send dollars from Strike’s cash balance to savings and Visa-enabled accounts. The app will convert US 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 US can reach as high as $45 per transaction, with transfers taking hours or sometimes days. Thus, users may begin to prefer Strike-based payments over traditional remittance channels.
A recent report by Marty Bent found that LN payments have increased this year on one of the top Lightning Network wallets, Wallet of Satoshi. Also, Podcasting 2.0 – a podcasting platform that accepts LN payments – also recorded an increase in tips sent to creators.
Related: Retail giant Pick n Pay accepts Bitcoin in 1,628 stores across South Africa
Nostr increases LN adoption
Another factor influencing the introduction 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 resonates strongly in the crypto space, with Bitcoin pioneers such as Jack Dorsey and Adam Back strongly backing Nostr.
In addition to their similarities in ideology, Nostr can increase LN adoption, as Damus has integrated various LN wallets such as Wallet of Satoshi, Strike, BlueWallet and others. According to a report by LN analyst Kevin Rooke has over 600,000 users signed up for Nostr. This can help onboard users to LN, as Nostr supports the Bitcoin payment network through Nostr Zap.
Although LN does not have a native token, there is a potential for LN nodes to earn fees to facilitate transactions and provide liquidity. But in its current state, the earnings are negligible. Therefore, Lightning Network’s growth appears to be organic, and it is well positioned to become the leading global payment network – as prominent personalities in the space have predicted.
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