The capacity of Lightning Network, Bitcoin’s second layer, has surged in 2021.
The year started with around 1,050 BTC locked on the LN network, which is roughly the same level as the previous all-time peak in May 2019, but starting in February it began to grow.
In fact, by the end of February, it had already exceeded 1,100 BTC, and in March it continued to rise.
The growth temporarily stopped around mid-April, when the price of bitcoin hit its all-time high and then started to fall.
However, from the end of April, there was a real surge. In just over two months, the number of BTC locked on the Lightning Network has increased by 47%.
Looking at the graph in dollars, and not in BTC, we can see that the total value in US dollars of bitcoins tied up on LN today is very similar to that of mid-May, i.e. the days before the flash price crash on 19 May. So it is possible that the surge over the last 50 days is somehow dependent on the drop in the dollar price.
In any case, the number of bitcoin locked on the Lightning Network is currently at a new all-time high above 1,700 BTC.
As far as dollar volume is concerned, the highest peak was of course recorded on 14 April at almost $77 million, the day on which the all-time high for the price of bitcoin in dollars was also recorded.
This latter figure, however, still seems decidedly low, especially when compared with that of other services that are in some ways similar.
For example, the volume of bitcoin locked on the Wrapped Bitcoin (WBTC) protocol is $6.7 billion, a couple of orders of magnitude higher.
However, while LN now serves mainly as a means of payment, WBTC is used mainly within the DeFi protocols on Ethereum, i.e. for speculative or purely financial purposes.
Bitcoin and the Lightning Network boom
It is possible that the boom in LN following the flash crash on 19 May was also due to the use of bitcoin as a medium of exchange in countries such as El Salvador, where one of the most downloaded apps of all time is a bitcoin wallet based on the Lightning Network.
However, it is worth noting that LN’s success will always be linked to BTC payments, as decentralized protocols are also being developed on the Lightning Network, allowing for token exchanges and bitcoin trading. The eventual success of these protocols, which allow for almost instantaneous exchanges at very low costs, could result in the number of bitcoin locked on LN reaching well over 2,000 BTC, and perhaps much more, possibly even aiming in the long term to exceed the nearly 200,000 BTC locked on Wrapped Bitcoin for example.
LN’s growth also solves one of Bitcoin’s main problems, namely slow and expensive transactions, seeing as with Lightning Network it is possible to send BTC at almost no cost, and receive them almost instantly. While this is a minor problem for those trading large amounts of bitcoin, it is a major problem for those trading small or very small amounts.