Africa Moves to Lightning, Stablecoins as Bitcoin Transaction Fees Rise

Bitcoin (BTC) users in Africa are increasingly moving to the Lightning network and stablecoins as transaction fees have risen to their highest level in about two years.

The Lightning network is a layer built on top of the Bitcoin network to process transactions faster.

Many across the continent have already used these tools, so they weren’t necessarily plagued by high fees, but instability has also been noticed even in wallets using the Lightning network, some said.

As a result of the higher fees, there has been a shift in demand from customers who now “prefer to move their transactions through stablecoins like USDT, while people with low-volume transactions now prefer lightning network transactions over base-layer transactions,” Heritage Falodun said. the founder of Africa-focused over-the-counter liquidity provider Digioats.

The dramatic increase in transaction fees is at least partly due to the introduction of ordinals on Bitcoin, a protocol that allows the creation of non-fungible tokens and BRC-20 tokens, associated with some memecoins, on the Bitcoin network.

The everyday users of bitcoin for transactions such as cross-border payments and money transfers have been greatly affected, said Lorraine Marcel, a Kenya-based founder of Bitcoin DADA, a project to educate women in Africa about crypto. The majority of the African population is not familiar with the Lightning network, and “most teachers prefer to take beginners onto the unchain network as it offers self-custody,” she said.

While the absolute amounts of transaction fees may seem small to those in the West, it is a significant burden to those in African countries with weak economies, said Lagos, Nigeria-based Mary Imasuen, host of the Bitcoin Gamer Chat Podcast.

Traders are also affected. “Most exchanges operating in Africa are yet to have lightning…many traders are still waiting for transactions from three days ago to confirm… [while] some trades are too expensive to settle,” Kgothatso said Machankura wallet in an interview with CoinDesk.

Those running bitcoin nodes also have problems. “Opening a channel to the node now costs more than before because of the bitcoin fees,” Imasuen said. “From the perspective of those in Africa, where our currency is constantly devaluing, this cost is not small,” she said.

Ultimately, this may lead to less decentralization of the network. Fewer “regular people” will be able to “run efficient nodes without using a well-funded LSP [lighting service provider],” which can increase centralization at layer 2, said Nikolai Tjongarero, Bitcoin Educator, founder of EasySats and BTC Mining Namibia.

Even those already using the Lightning network have faced difficulties as transactions have been congested or liquidity has dried up across service providers.

“Every Monday for the past year and a half, I have paid the salaries of 11 people working for Bitcoin Ekasi using lightning, and today was the first time in over a year that the process has not gone smoothly,” said Hermann Vivier, Chairman of South African Bitcoin Ekasi, a startup that aims to create a circular bitcoin economy. “I had to use 4 different lightning wallets as channel liquidity between different wallet providers had dried up.”

Users of the Muun wallet, which uses both bitcoin and lightning layers to process transactions, have been charged high fees, particularly those using it for payments at South African retail chain Pick N Pay, Kgothatso said. Congestion on the mempool has made exchanges in the Muun wallet expensive, with users footing the bill, Kgothatso added.

Despite all these issues, many in Africa see this fee increase as a potential net benefit for adoption, as it reinforces the shift towards Lightning network integration and other solutions.

Marcel is “hopeful” that the fee increase is “only temporary,” but added that it is “an eye-opener.”

“In a way, it’s a good thing, as it forces people to lightning … despite short-term disadvantages,” Vivier said.