Bitcoin adoption grows as Lightning Network hits all-time high
The amount of bitcoin stored on the Lightning Network payment protocol has reached an all-time high, suggesting that the cryptocurrency is increasingly being used as a form of currency.
In the 15 years since its invention, bitcoin has filled many roles – from a source of speculation to a hedge against inflation – but has struggled to find a clear identity. Now there are growing signs that it is moving towards its intended purpose: payments.
“Development in developing crypto-payments has continued apace, although it has gone somewhat unnoticed due to volatility in the broader market,” said Richard Mico, US CEO of Banxa, a payments and compliance infrastructure provider.
The amount of bitcoin stored on the Lightning Network has increased by two-thirds in the past year to reach an all-time high of 5,580 coins, according to crypto data firm The Block.
Crypto payment specialists have also seen strong volumes. US-based BitPay said transaction volumes rose 18 percent last year against 2021. CoinsPaid said volumes in the fourth quarter of 2022 rose 32 percent compared to the previous year.
The original vision of bitcoin’s pseudonymous inventor Satoshi Nakamoto, laid out in a 2008 white paper titled ‘Bitcoin: A Peer-to-Peer Electronic Cash System’, was for crypto to serve as an alternative form of payment that was resistant to inflation and central banks.
Price volatility, slow processing speeds and persistent regulatory uncertainty have been among the factors that have made cryptocurrencies unwieldy as a means of payment until now, with few merchants pricing goods or services in crypto.
Nonetheless, proponents say bitcoin offers lower transaction costs and faster speeds than traditional cash, especially for cross-border transfers. The Lightning Network, which sits on top of bitcoin’s blockchain, has also revolutionized transaction speeds in recent years.
Apart from bitcoin, other cryptocurrencies including stablecoins, which are pegged to the value of traditional currencies, have emerged as popular alternatives, especially for cross-border payments, money transfers, plus in emerging markets where the value of local currencies has been hit by inflation.
Stellar, a blockchain that enables cross-border payments, saw the number of transactions on its platform increase to 103.4 million last month from 50.6 million in January 2022.
Cross-exchange trade volumes between bitcoin and Turkey’s lira and Brazil’s real increased by 232 percent and 72 percent, respectively, CryptoCompare data showed.
It is not entirely without problems for the widespread use of crypto for payments; first, there is the question of whether blockchains are ready to handle the stress of processing thousands of transactions at a time, especially without a concomitant jump in transaction fees.
Efforts by some of the world’s largest economies, including Japan, China and India, to create their own digital currencies (CBDCs) could also throttle the growth of crypto payments, some market players say. For others, however, growing interest in CBDC is proof that blockchain payments technology is here to stay.
Traditional financial firms looking to embrace crypto payments have also shrugged off recent market volatility. Visa struck a deal this month with crypto firm WireX to directly issue crypto-enabled debit and prepaid cards.
“Crypto is evolving into a viable option for more and more people around the world,” said Mr Mico at Banxa.
Developing economies have shown particular interest in bitcoin in recent years, with El Salvador becoming the first country in the world to make the cryptocurrency legal tender in 2021.
Additional reporting by agencies
