The Bitcoin community celebrated as the layer 2 payment system reached a total of over 3,400 BTC locked. That is an equivalent of around $141 million.
Bringing near-zero fee BTC payments, Lightning’s adoption rose dramatically over the last year. During the same period, bitcoin became significantly more utilized as a network and an investment asset by investors and large companies as the crypto bull run went on.
However, growth has been slowing since November’s crypto crash. Moreover, Lightning’s total capacity is still minuscule compared to the $790 billion in Bitcoin’s market cap.
In fact, users hold more Bitcoin on the Ethereum blockchain as Wrapped tokens, with the market cap of Wrapped BTC standing at $10 billion.
How Does it Work?
The Lightning Network is an off-chain network that allows users to make Bitcoin payments at near-zero fees. Launched in 2018, it aimed to solve Bitcoin’s scalability problem.
It does so by letting users lock up a sum of Bitcoin on the network. They then use its equivalent to make many smaller, off-chain payments.
Once transactions are completed, the network sends out the payments on one on-chain transaction. The results are significantly lower fees and less congestion.
However, there are some issues with the network. Firstly, it does not completely eliminate the cost of Bitcoin transactions. It still saddles users with the cost of opening a Lightning channel, which has to be on-chain.
Most of all, it makes users exposed to Bitcoin’s price risks. Specifically, the network requires users to lock their coins up.
Violent BTC price fluctuations could be one of the reasons for the slow growth of the network.
Block and Lightning
In January, Cash App integrated the Lightning Network, bringing zero-fees Bitcoin payments to the app.
This integration became possible due to the Block’s open-source Lightning Development Kit.
Block (formerly Square) is Cash App’s parent company. On Tuesday, Block’s CEO Jack Dorsey restated his commitment to open-source software and open protocols like Bitcoin.
This article was first published on: Feb 6, 2022