The Growth of the Bitcoin Lightning Network
A recent report by Bitcoin technology and financial services company River has highlighted the remarkable growth of the Bitcoin Lightning Network. The report focuses on the increase in transactions on the layer-2 scaling solution. According to River’s research, there were 6.6 million routed Lightning Network transactions in August 2023, marking a significant gain of 1,212% since August 2021. The total volume of these transactions reached around $78 million, a growth of over 500% from the previous year.
Main Use Cases and Transaction Size
The primary use cases driving the growth in Lightning Network transactions are gaming, social media tipping, and streaming, which account for 27% of the overall increase. The average transaction size on the Lightning Network is approximately $11.84, indicating that most payments are too small to be cost-effective on the main Bitcoin blockchain.
“Lightning is effectively extending Bitcoin’s utility by enabling low-value payments over the Internet.”
Increasing Adoption and Ecosystem Expansion
River’s research estimates that there are between 279,000 and 1.1 million monthly active Lightning Network users as of September 2023. The activity on the network has become more global and distributed compared to the previous year. The number of nodes, channels, and capacity has remained steady over time as nodes have become more efficient. The current Lightning Network capacity is 5,283 BTC, valued at around $146 million.
Custodial Users Dominate
The report emphasizes the dominance of custodial users on the Lightning Network. The ratio of non-custodial to custodial users is approximately 1:8, indicating that most users rely on exchanges or intermediary service providers. This raises the challenge of making non-custodial usage as appealing as custodial wallets, which may require more developers, companies, and capital to address.
“The ‘nobody is using Lightning’ meme is dead.”
Hot Take: Future Growth Drivers
The report concludes that key drivers for future growth in the Lightning Network include increased adoption by exchanges, select technical upgrades, and the integration of non-Bitcoin businesses onto the network.
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