Bitcoin’s lightning capacity rises, the US plays a big role

One of the largest Bitcoin Lightning Network (LN) node operators, River Financial, recently released a report on this second-layer payment solution. Previously thought of as an experiment used by savvy BTC holders, LN is quickly becoming a key component of this blockchain ecosystem and its potential ticket to the mainstream.

The report defines LN as a second-layer Bitcoin solution that enables users to send and receive transactions off-chain, “without having to wait for on-chain settlement”. This solution was created to improve BTC’s payment scalability by allowing devices to quickly trade small amounts of the cryptocurrency without relying on block settlements.

LN operates with devices called Lightning Channel, the nodes that support the network and allow two users to perform a transaction. As can be seen from the chart below, the prevalence of LN channels has increased since the end of 2018.

The following year, the second-tier Bitcoin payment solution saw a massive increase in its unique channels. These stood at 25,000 followed by a long period of consolidation and slower adoption.

However, in 2021 adoption began to increase again, reaching over 90,000 unique LN channels with an upward trend aiming for 100,000. In less than a year, these units went from around 50,000 to their current level.

This growth was likely supported by the COVID-19 pandemic and people’s demand for fast, affordable payment methods with global reach.

The future of payments will be hosted by the Bitcoin network?

While Bitcoin LN channels are increasing, payment capacity is sticking to a similar trajectory. In 2019, the second tier solution had less than $50 million in capacity or less than 1000 BTC.

This capacity also consolidated between then and 2021. This year, LN’s capacity increased to over $200 million at its peak, as the Bitcoin price hit an all-time high of $69,000, with 3,500 BTC in its capacity.

As the chart below shows, capacity in BTC continues its upward trajectory despite the bearish trajectory of the price of the underlying asset. The bear market has failed to dissuade people from adopting LN. River noted:

Since the launch of the Lightning Network in 2018, the total capacity has grown to nearly 5,000 BTC. Capacity represents the amount of bitcoin that can be traded on Lightning and is a decent metric to measure the use of the network.

As Bitcoinist reported, LN could allow Bitcoin to bridge the gap between early adopters and regular people looking for a specific application to improve their lives. River Financial believes the solution can go beyond payment and unlock “exciting new opportunities” from a business perspective. The report noted:

Tomorrow, Lightning can enable the full financialization of Bitcoin as node operators can put bitcoin to productive use by using Lightning nodes properly. This can allow node operators to generate a passive return on bitcoin with very low counterparty risk.

The River Financial report also discovered that most of the activity in LN is supported by activity originating in US time zones. The network sees fewer transactions during US sleeping hours, and vice versa.

The report claims that the impact of the zone is “not surprising, given that we have many US-based Lightning channels”. In addition, El Salvador made Bitcoin legal tender based on the high adoption of the Lightning Network.