“Lightning Network growth has gone exponential and here are some numbers to back up why LQwD is acquiring Bitcoin as an operating asset, securing nodes and pursuing this global opportunity.”
-Shone Anstey, Founder/CEO LQwD Fintech Corp.
Still in the early stages of adoption, the size of the Lightning Network continues its rise to record levels at a rapid rate. Recent Lightning Network data has shown a large uptick in the number of Lightning nodes coming online and the capacity of Bitcoin held in Lightning channels. According to data from Bitcoin Visuals, the number of public nodes has grown by nearly two-thirds since mid-March. On March 16, there were 9,682 nodes. By August 15, there were 14,332.
The number of Lightning channels reveal a similar trend. Lightning unique channels increased from 36,246 to 61,029 in the same period of time.
The growth in the number of nodes and channel creation has had a positive impact on the amount of Bitcoin these channels are carrying. It took almost three years for the network capacity to grow to 1000 Bitcoin and remain above that level, but as of now, on August 16, 2021, the capacity is at 2,286 Bitcoin.
Why this rapidly increasing rate of node, channel creation and Bitcoin carrying capacity?
Lightning nodes ensure trust in the Lightning Network. Each node opens up a payment channel funded and secured by Bitcoin and then keeps a record of the true state of that payment channel. These Lightning nodes carry the responsibility to:
- Monitor the changing state of Lightning channels in the Lightning Network
- Interact with other Lightning nodes
- Transact Bitcoin, to keep track of who has what in each channel.
The Lightning Network has been the beneficiary of positive developments in the broader Bitcoin space such as the growing legal recognition of Bitcoin worldwide, the adoption of Bitcoin as a payment rail in which Lightning has been made available, the growing availability of DApps that use Lightning, and blockchain developers making it easier and quicker to set up a Lightning node.
Let’s unpack each of these factors.
1) Bitcoin’s legal acceptance
Leading into 2021, most countries had allowed the use of Bitcoin as an alternative currency but with varying legal positions. Countries such as Estonia, Malta and the Seychelles allowed blockchain companies to operate under a friendly legal apparatus, giving Bitcoin a de facto legal acceptance. Established G20 countries such as Canada, the US and the UK took an ambivalent position: on the one hand, regulators warned of Bitcoin being a payment haven for “undesirable groups,” while on the other hand, companies such as Subway, Amazon, PayPal and Microsoft accepted Bitcoin payments (or hinted at accepting them). President Nayib Bukele’s recent announcement about making Bitcoin legal tender in El Salvador was a formalization of this trend of legal acceptance.
2) Lightning in the Bitcoin payment
Part of the growing legal acceptance of Bitcoin is because companies are calling for it. And, following on from that, it is the presence of Lightning in various Bitcoin payment processors that has accelerated the use of Lightning as reflected in the numbers discussed earlier. Payment processors such as BTCPay, BlueWallet, Globee, Strike and Bitcoin Beach offer wallet services with a Lightning facility which has made it easier for businesses to take advantage of Lightning as part of their Bitcoin adoption. An increasing number of these wallet services also guide users into setting up a Lightning node, such as OpenNode and Casa Node.
The combination of Bitcoin’s usage as a payment rail and its broader legal acceptance has paved the way for Lightning to become part of the payment infrastructure. Lightning operates at the backend with users not necessarily knowing that they are using Lightning. So, corporate adoption of Bitcoin has had a knock-on (positive) effect on the increase of Lightning nodes, channels and Bitcoin-holding capacity.
3) A new kind of DApp
Now turning to developments in the infrastructure of the Lightning Network itself: this is where users
wishing to help strengthen the network have been linking with Lightning to run processes and set up nodes. There are more DApps, Decentralized Applications, coming online that use Lightning. Some examples are ZigZag, that uses Lightning for swapping between cryptocurrencies, and Bitrefill, which offers Lightning-powered gift cards and bill payment facilities. The sheer expansion of DApps that run Lightning has given rise to the term LApps. While DApps refer to any crypto app that works with blockchains, LApps are designed to work specifically with the Lightning Network, especially in the areas of managing nodes and payment channels. This is a rapidly growing area of development for the Lightning Network.
4) Lightning Network services becoming more comprehensive
There are those users who are knowledgeable enough to want to harness Lightning, but not technically expert enough to run nodes, channels and watchtowers alone or from scratch. So we are seeing the emergence of new platforms that run a whole suite of Lightning services that will attract new users who wish to help build the network. Services like Blockstream’s Greenlight and Lightning Labs’s Lightning Pool offer users the opportunity to run a non-custodial Lightning wallet, use the platform’s resources to set up channels, develop DApps (or LApps), participate in a digital marketplace for Lightning channels, receive revenue for routing payments through multiple channels, run upgrades, run watchtowers, and share Lightning nodes on the Cloud with other users.
These are just some of the existing features that users of Lightning now have access to. But, like the Bitcoin blockchain itself, Lightning continues to evolve, new features are coming through that are designed to make the Lightning Network more flexible and encourage greater network traffic.
New services incoming
Bitcoin is continuously evolving and the Lightning Network is no different. One such innovation coming from Blockstream, working on Lightning implementations, will make Lightning even more convenient to use. In May 2021, Blockstream utilized its c-lightning implementation to make it possible for both parties in a channel to deposit Bitcoin regardless of which party’s node had set up the channel. Dual funding of a Lightning channel means that the party with the Lightning node no longer has to bear all the fees and costs of opening the channel, of sending Bitcoin funds to the channel and then of closing the channel. With dual funding, any party can load the channel thus balancing the fee load and making the channel both more efficient and less prone to delays caused by unbalanced channels. Dual funding will also increase the capacity of Bitcoin held in the Lightning Network and will certainly encourage further creation of Lightning nodes and channels.
So, it is the combination of these developments that have smoothed the way for a great increase in the creation of Lightning nodes and, in turn, an increase in the amount of bitcoins deposited to the Lightning Network. These trends in turn strengthen both the case for financial decentralization and Lightning’s developing role as a low-cost gateway for future adoption of Bitcoin.