Bitcoin is a decentralized digital currency that has been gaining traction in recent years. The Bitcoin network is supported by a peer-to-peer network of computers, and it is secured by a cryptographic algorithm. One of the most exciting developments in the Bitcoin space is the Lightning Network (LN). The Lightning Network is a second layer protocol built on top of the Bitcoin network that enables near-instant, low-cost, and secure payments.
Recently, the capacity of the Lightning Network surpassed an all-time high of 5,000 BTC. This is a significant milestone for the network as it shows that the network is gaining traction and real-world adoption is increasing. The Lightning Network does not have a native token like many decentralized finance (DeFi) protocols, and its total liquidity is less than 0.5% of the ETH in DeFi contracts.
However, the Lightning Network’s capacity has been rising consistently, even though the number of channels on the network dropped drastically in November following the FTX collapse. This could be due to miners operating LN nodes in addition to running mining clients. But, the end of miner capitulation and the rise of Bitcoin-based applications like NFTs could 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 stated that LN adoption is picking up speed in emerging markets like South America and Africa. This is mainly due to the efforts of the LN mobile payment application, Strike. In December 2022, Strike launched an LN-based remittance service in Africa that offers no-cost transfers from the U.S. 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. This allows users to send dollars from Strike’s 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’s price volatility is minimal. This could be a great alternative to traditional remittance channels, which can be expensive and take hours or days to complete.
A recent report from Marty Bent found that the LN payments have risen this year on the top Lightning Network wallets, Wallet of Satoshi. Moreover, a podcasting platform, Podcasting 2.0, that accepts LN payments also recorded an uptick in tips sent to creators.
Another factor influencing the adoption of LN is the launch of Nostr. Nostr is a simple, open protocol that enables global, decentralized, and censorship-resistant social media. The protocol allows social media applications to be built on it. Damus, a Twitter lookalike, implements Nostr with an IOS and Android application. Damus has integrated various LN wallets like Wallet of Satoshi, Strike, BlueWallet, and others. Over 600,000 users have signed up on Nostr, which could help onboard users to LN as Nostr inherently supports the Bitcoin payment network through Nostr Zap.
The Lightning Network is a neutral protocol built on top of Bitcoin, and it does not have a native token, avoiding speculation. While there is a potential for yield for LN nodes as fees for facilitating transactions and providing liquidity, the earnings are negligible in the current state. Hence, the Lightning Network’s growth appears organic and well-positioned to become the leading global payment network, which prominent personalities in this space have predicted.
The Lightning Network has the potential to revolutionize the way payments are made. It is fast, secure, and cost-effective, and its growth appears to be organic and driven by real-world adoption. The Lightning Network is gaining traction in emerging markets like South America and Africa, and its capacity recently surpassed an all-time high of 5,000 BTC. Moreover, the launch of Nostr has helped to onboard more users to the Lightning Network. As more applications and services are built on top of the Lightning Network, its adoption will continue to grow and it could become the leading global payment network.
