Will the Lightning Network’s New ATH Help Bitcoin Go Up?
The Lightning Network has made headlines. Amidst the ongoing BTC price decline, the second layer solution aimed at making the Bitcoin network lightning-speed fast reached a new capacity record. On May 28, 2022, the Lightning Network’s capacity exceeded 3,900 BTC reaching a new all-time high. Such a capacity creates an opportunity for processing over $112 million worth of Bitcoin through the nearly 17k channels (interestingly, the number of active channels was higher in the past). Does it mean that the Lightning Network is prospering? Does it give us hope that Bitcoin is going to recover soon? Well, let’s try to find the answers to these questions.
The Lightning Network. Then and Now
Bitcoin has an inborn flaw — it’s too slow for a modern popular P2P payment network that is used all over the world. Transactions that take up to several minutes are not something people strive for when many people get used to paying with a card in the blink of an eye. History knows a series of solutions to this problem — for instance, several Bitcoin forks (Litecoin and Bitcoin Cash) use the increased transaction speed as a core selling point. Another popular solution was the Lightning Network protocol.
This protocol was developed as early as 2015. It came through a series of tests and upgrades. Now, this protocol is actively used on several huge platforms (e.g., the Bitfinex and Kraken exchanges), the LN supporting wallets are the preferred crypto wallets in El Salvador since the country became the first jurisdiction to recognize Bitcoin as a fully legal means of payment.
What is the use of the Lightning Network protocol and how does it work? This solution is aimed at addressing the Bitcoin scalability problem. LN dramatically increases the speed of the BTC transactions and allows micro-payments. All of these don’t require a sensitive increase in fees. Transactions sent via the Lightning Network take under one minute.
LN works outside the blockchain. The protocol uses bi-directional channels. To use them users should grant some receiving liquidity. These channels provide the best routing for money flow making the transaction much faster than it would take via the regular on-chain operation. The protocol monitors the network of the active channels for the quickest way between the transaction participants in fractions of a second. Then, the transaction gets finalized.
As the Lightning Network requires users to provide some liquidity in order to make transactions, the protocol is limited. And that is why the increase in the network’s capacity is big news. Even the 3,900 BTC capacity is considered to be too small for such a giant as the Bitcoin network.
Some experts are skeptical about the prospects of the Lightning Network as the ways to solve the problem of the LN limitations lay outside the protocol itself. Mostly, the LN users have to rely on centralized third-party services that provide receiving liquidity so they can make payments via the Lightning Network. A better solution might be an upgrade of the protocol itself to allow users to control their LN payments without the need to rely on third parties. However, such improvements are yet to be done.
Does the New LN Capacity ATH Signal Us About BTC Soon Recovery?
As of May 31, 2022, Bitcoin goes through one of the long-lasting bear markets of all time. The gradual decline continues for over 200 days in a row. In 2021, Bitcoin reached its historical maximum at $69k. This May the price has dipped below $30k for the first time since the ATH.
Some experts expect the price will go below $23k before changing the trend. If you read what professionals and enthusiasts say you will find out that there is no single vision for the future of the BTC price and the main factors and drivers of this price. Earlier this week, Tim Draper, a huge investor, and cryptocurrency believer said that as soon as retail shops start accepting bitcoins, women (who weigh in 80% of the retail shops’ income) will drive the BTC price beyond $250k per unit. Others note that the crypto market became calmer and more similar to a stock market. If this comparison turns out to be true for a long time, we will barely see any quick growth in the crypto market.
So can the Lightning Network capacity growth signal the new heights for the Bitcoin price? Of course, this LN news will contribute to the growth of Bitcoin. The news itself improves the investment climate a bit and the very fact that the Lightning Network keeps on widening despite the BTC price decline means that more people will be able to exchange bitcoins quickly, use them as a payment, etc. Nevertheless, this protocol isn’t flawless and still cannot serve the demands of all of the people using Bitcoin. Hopefully, the infrastructure built around the Lightning Network will keep on progressing and the protocol itself will get more convenient. No doubt, the Lightning Network will keep on widening and playing a positive role in the BTC adoption.
