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Bitcoin Lightning Capability Rising, US Playing a Big Role

One of the largest Bitcoin Lightning Network (LN) contract operators, River Financial, recently published a file Report On the second tier payment solution. Formerly designed as an experiment for savvy BTC holders, LN has quickly become a staple of this blockchain ecosystem and its potential ticket into the mainstream.

The report defines LN as a Layer 2 Bitcoin solution that enables users to send and receive off-chain transactions, “without having to wait for on-chain settlement.” This solution was created to improve the scalability of BTC payments by allowing entities to quickly transact small amounts of cryptocurrency without relying on block settlement.

LN works with entities called Lightning Channel, which are the nodes that support the network and allow two users to carry out a transaction. As shown in the chart below, the penetration of LN channels has increased since late 2018.

The following year, the Layer 2 Bitcoin payment solution saw a massive rise in its unique channels. They numbered 25,000 followed by a long period of slower consolidation and adoption.

However, in 2021, adoption started to rise again allowing unique LN channels to reach over 90,000 with an uptrend aiming for 100,000. In less than one year, these entities went from around 50,000 to their current levels.

This growth may have been fueled by the COVID-19 pandemic and people’s demand for fast, low-cost payment methods with global reach.

LN Channels has been growing since 2019. Source: River Financial

Will the Bitcoin Network Host the Future of Payments?

At the same time, as Bitcoin LN channels increase, its ability to pay is sticking to a similar path. In 2019, the capacity of the second layer solution was less than $50 million or less than 1,000 bitcoins.

This capacity was also boosted between then and 2021. This year, LN capacity soared to over $200 million at its peak, when the price of bitcoin reached an all-time high of $69,000, with 3,500 bitcoin in capacity.

As the chart below shows, the amplitude in BTC continues its upward trajectory despite the downward trajectory of the price of the underlying asset. The bear market failed to dissuade people from adopting LN. Note the river:

Since the launch of the Lightning Network in 2018, the total capacity has grown to nearly 5,000 BTC. Capacity represents how much bitcoin can transact on Lightning and is a convenient metric for measuring network adoption.

Bitcoin BTC BTCUSDT Chart 2
Bitcoin LN Capacity Rising in 2021. Source: River Financial

As reported by Bitcoinist, LN may allow Bitcoin to bridge the gap between early adopters and ordinary people looking for a specific use case to improve their lives. River Financial believes the solution can go beyond payment and open up “exciting new opportunities” from a business perspective. The report indicated:

Tomorrow, Lightning may enable full Bitcoin financialization as node operators can put their bitcoins to productive use by properly capitalizing the Lightning nodes. This could allow contract operators to generate a negative return on Bitcoin with very low counterparty risk.

The River Financial report also found that most activity in the LN is backed by activity that originated in areas of the American eras. The network sees fewer transactions during American sleep hours, and vice versa.

The report claims that the region’s impact “is not surprising, given that we have many Lightning channels in the US.” In addition, El Salvador has made Bitcoin legal tender based on the massive adoption of the Lightning Network.

BTC price is moving sideways on the daily chart. source: BTCUSDT TradingView

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