On Monday, for the first time in history, the capacity of the Lightning Network (LN) exceeded 4,200 BTC.
Bitcoin on Lightning Network channels
This is the total number of Bitcoin locked on LN channels, and therefore usable within this second layer that allows very fast and cheap transactions.
Less than a decade ago LN capacity had exceeded 4,000 BTC for the first time in history, so in just over a week it has increased by 5%.
At the end of June, which was just over two weeks ago, it was about 3,900 BTC, so the increase in two weeks was almost 8%. In contrast, at the beginning of the year it was 3,300 BTC, so the cumulative increase in about six and a half months is more than 27%.
It is worth noting that compared to the 19 million Bitcoin in circulation, 4,200 corresponds to only a little more than 0.02%, so there is still considerable room for growth in this respect.
LN is mainly used for quick transactions of small to medium amounts, and in particular for microtransactions. In fact, using Lightning Network to send Bitcoin brings down the average cost of a single transaction dramatically, from the current $0.5 on-chain to well under $0.1, even less than $0.01.
Therefore, for transactions of medium to high amounts, it is still preferred to use the main blockchain, even if a bit slower and more expensive, while when one needs to make immediate transactions, or low amounts, it is definitely worth using LN.
By now, many Bitcoin wallets offer the possibility of opening and using LN channels, which is why its use is becoming more and more widespread.
Even the Cleveland Fed has taken an interest in this growth lately, issuing an 18-page report explicitly titled “The Lightning Network: Turning Bitcoin into Money“.
The report states that LN is a means of making Bitcoin payments outside of the blockchain, with the increasing adoption of LN reducing blockchain congestion.
The paper was authored by Anantha Divakaruni and Peter Zimmerman, who say LN has helped improve the efficiency of Bitcoin as a means of payment by reducing the cost of transactions.
According to Divakaruni and Zimmerman, Bitcoin could function as a means of payment thanks to LN, though as no data is available on how much LN is actually used to transact BTC, it is not possible to say with certainty whether Bitcoin already qualifies as a means of payment.
They conclude by saying:
“We can only say that the Lightning Network loosens a key technological constraint by allowing payments to be settled more quickly”.