Bitcoin Lightning Network growth is organic, coming from the real world

Bitcoin’s Lightning Network (LN) capacity recently passed a record 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 associated with it like many decentralized finance platforms.

Although Lightning Network’s total liquidity is less than 0.5% of 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 rise of Bitcoin-based applications such as NFTs 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 stated that LN adoption took off 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 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.

The cost of international payments from the US can rise 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 the top Lightning Network wallet, Wallet of Satoshi. Also, a podcasting platform, Podcasting 2.0, that accepts LN payments saw 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 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. The idea of ​​an open and free social media network resonates the strongest in the crypto space. Bitcoin pioneers such as Jack Dorsey and Adam Back have strongly supported Nostr.

Besides similarities in ideology, Nostr can increase LN adoption as Damus has integrated various LN wallets such as Wallet of Satoshi, Strike, BlueWallet and others. A report from LN analyst, Kevin Rooke, cited that over 600,000 users registered on Nostr. This can 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, with no token attached to it, avoiding speculation. There is a potential for returns for LN nodes such as fees for facilitating transactions and adding liquidity. But in today’s state the income is insignificant. Therefore, Lightning Network’s growth seems organic and well positioned to become the leading global payment network, as prominent personalities in this area have predicted.

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