The capacity of the Bitcoin Lightning Network (LN) has recently surpassed its all-time high of 5,000 BTC.
The Lightning Network is a neutral protocol built on top of Bitcoin and currently does not 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 ETH in DeFi contracts, the upward trend in Bitcoin LN capacity versus a downward trend in the amount of ETH locked in smart contracts is encouraging for the development of LN.
While liquidity on the LN has been steadily increasing, the number of channels on the peer-to-peer network fell sharply in November following the collapse of FTX. It could be due to an exodus of miners operating LN nodes in addition to running mining clients.
However, the likely end of miner capitulation and the rise of Bitcoin-based applications such as NFTs could mark the end of LN channel capitulation. Since the start of 2023, more than 2,000 new channels have been added to the network.
A report by Valkyrie Investments claimed that LN adoption was picking up speed in emerging markets like South America and Africa, mainly thanks to the efforts of LN’s mobile payment app, Strike.
In December 2022, the company launched an LN-based remittance 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 company advertisement LN dollar payments, where users can send dollars from their Strike cash balance to savings and VISA accounts. The app will convert dollars to BTC in the background and convert them to dollars at the destination. Since LN is fast and cheap, the risk due to Bitcoin price volatility is minimal.
The cost of international payments from the US can be as much as $45 per transaction, with transfers taking hours or sometimes days. Thus, users could start to prefer Strike-based payments to traditional remittance channels.
A recent report by Marty Bent found that LN payouts have increased this year on major Lightning Network wallets, Wallet of Satoshi. In addition, a podcasting platform, Podcasting 2.0, that accepts LN payments also saw an uptick in tips sent to creators.
Nostr is driving the adoption of LN
Another factor influencing the adoption of LN is the release of Nostr. According to the Github page of the protocol, Nostr is a simple and open protocol that allows you to create global, decentralized and censorship-resistant social media. The protocol allows you to build social media applications on top of it.
Damus, a Twitter simile, implements Nostr with an app for IOS and Android. The idea of a free and open social media network resonates most strongly in the cryptocurrency space. Bitcoin pioneers like Jack Dorsey and Adam Back have strongly endorsed Nostr.
Apart from the similarities in ideology, Nostr may boost LN adoption as Damus has integrated various LN wallets like Wallet of Satoshi, Strike, BlueWallet and others. A report by LN analyst Kevin Rooke, quoted that more than 600,000 users registered on Nostr. This could help to onboard users to LN, as Nostr is compatible with the Bitcoin payment network through Nostr Zap.
The Lightning Network is a neutral protocol built on top of Bitcoin, with no token tied to it, which prevents speculation.. There is potential return for LN nodes in the form of fees for facilitating transactions and providing liquidity. However, in the current state, the gains are negligible. Thus, the growth of the Lightning Network appears organic and well positioned to become the leading global payments network, as foretold prominent personalities of this space.
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