Lightning Network adoption has made using Bitcoin more efficiently a reality. The network empowers instant micropayments using fractions of Bitcoin without burdening the main blockchain.
Bitcoin is a store of value that reached a high of $62,097.52 at the end of October 2021. As a result, using fractions of it make it an attractive currency for micropayments all over the world.
Furthermore, many companies have contributed to Lightning Network adoption since 2018. These include crypto gambling sites and applications offering Bitcoin rewards for online games. You can include our own BC.GAME in this – we’re one of the few crypto casinos that use SATS to give our patrons an incredibly fast gaming experience.
In this article, we’ll look at the Lightning Network and what is fueling its adoption. We’ll also look at Lightning Network adoption phases and the current state of the network.
What Is The Lightning Network?
The Bitcoin Lightning Network is a Layer 2 protocol that communicates with the main Bitcoin blockchain but does not rely on it to process every transaction.
Instead, Lightning Network users only need to open payment channels by staking some BTC. Two users must sign a multi-signature (multisig) address, stake BTC, and send the opening balance to the main chain. Once they open this channel, they can transact using the BTC balance they both staked until one or both decide to close the channel.
Users can also link their channels to other channels. This creates a network of payment nodes that enables users to route payments to other channels. Users generally charge a fee to route payments. Lastly, the Lightning Network allows micropayments in BTC, payment routing, and fast transactions. It attempts to solve Bitcoin’s scalability issues and slow transaction throughput.
Why Is Lightning Network Adoption On The Rise?
The Lightning Network is an attractive solution to making Bitcoin a payment mode instead of a value store. It gives users the option of transacting with fractions of Bitcoin. A Satoshi (sat) equals 0.00000001 BTC. This opens many possibilities for online services like crypto casinos, play-to-earn video games, and merchants.
Furthermore, the Lightning Network has a maximum transaction speed of 25 million TPS. To put this in perspective, Visa can process 1700 TPS. Currently, Bitcoin’s on-chain speed is 7 TPS. The Lightning Network allows for near-instant transactions with very low fees.
Lightning Network adoption transforms Bitcoin into a viable day-to-day currency for the average consumer. They can purchase groceries, gift cards, and even pay for entertainment subscriptions in the future.
In the past, Lightning Network users needed to create a node to begin transacting with other users. It was a barrier of entry for the average user without extensive knowledge of computing. But companies have started creating non-custodial mobile wallets that allow users to transact using the network without much setup.
In summary, Lightning Network supports micropayments, provides 25 million TPS speed, and improves accessibility. It is no surprise that more and more users, developers, merchants, and financial services are participating in Lightning Network adoption.
Lightning Network Adoption Phases
The Lightning Network is a new protocol that launched as recently as 2018. But it has undergone massive growth in three years. Additionally, the network underwent two major phases during its growth.
The first phase occurred after its launch in 2018 and continued to mid-June. This was the experimental phase, and the network’s capacity reached a high of 1104 BTC in May 2019.
From the rest of 2019 to 2020, Lightning Network adoption slowed, but many developers began testing and launching their Lightning Network applications and services. It set the stage for the next adoption phase.
The second phase began at the beginning of 2021. Changes in Bitcoin’s main-chain transaction fees, El Salvador’s adoption of Bitcoin as legal tender, and other announcements and implementations are driving the second adoption phase. This phase is known as Early Adopters.
The Experimental Phase
During this phase, a few curious users attempted to test the Lightning Network’s limits and increase its BTC capacity. One node, LN.SHITCOIN.COM, was responsible for over 50% of the network’s capacity in 2018.
The same year, LNBIG, a node operator, was responsible for 40% of the network’s capacity. LNBIG’s nodes still perform as significant hubs on the network.
In 2019, the Lightning Network gained social media attention when a Twitter user (Hodlonaut) started the Lightning Torch. Hodlonaut opened a payment channel and sent 10 000 sats to another user. They then had to do the same with another user. Many notable figures passed the torch during the experiment. Users passed the torch 282 times. This helped the network to reach its peak capacity of 1104 BTC.
The Early Adopters Phase
In May 2021, Bitcoin trading and on-chain transactions declined to the point where transaction fees were quite low. El Salvador announced that they would begin accepting Bitcoin as legal tender in June using the Lightning Network.
These factors led to a massive increase in the Lightning Network’s BTC capacity. New users could open channels with low on-chain transaction fees, and many people grew curious about the network as it made headline news. Public channels on the network grew by 80% to 70 583. And the overall capacity of the network reached 2986 BTC.
The Early Adopter phase is still ongoing. Crypto exchanges have started introducing the Lightning Network. Twitter recently launched a tipping feature using the network. So, the Lightning Network seems more attractive than ever as we reach the end of 2021.
What Is Fueling Lightning Network Adoption?
The Lightning Network ecosystem comprises a group of companies that drive the use of the network as a day-to-day currency.
The Lightning Network is an open protocol. Any company can contribute to developing new tools for the network. Three companies, in particular, have significantly contributed to this development.
Firstly, there is Lightning Labs, which developed the Lightning Network Daemon. This software allows developers to create applications for the Lightning Network. It is open-source and has a host of features that do not require a fee. They have also developed other tools that assist users with running channels on the network.
Next, the developers of Eclair, ACINQ. This is a Scala-based implementation of the Lightning Network. It is also compatible with Java, making it a suitable tool for developing mobile applications on Android OS. ACINQ also developed the Phoenix Wallet and the ACINQ Node. They also assist with providing merchants and startups with liquidity when they join the Lightning Network.
The last significant company to contribute to the network’s development is Blockstream. They developed the c-lightning client, another implementation of the Lightning Network. They have also provided specification documents related to the Lightning Network and developed tools to enhance its performance.
Accessible Payment Options
The technical foundation allows companies to develop applications that make using the Lightning Network easier. They can provide wallet services or liquidity for users to open new payment channels.
Users need wallets to interact with the Lightning Network. They can set up their wallet, but it requires some expertise. There are a host of wallet services that do not require much setup. For example, the Wallet of Satoshi allows users to send and receive sats with a few taps. They also allow on-chain transactions and users to buy Bitcoin using the external link in the wallet.
Other companies also offer merchant payment solutions through merchant wallets that support specific business functions. These include regulatory and tax features for trading in Bitcoin. They also provide tools for utilising Lightning Network instant payments and accepting BTC payments.
For example, OpenNode provides merchants with plugins and extensions that make accepting Bitcoin payments easier. They are also compatible with major eCommerce platforms like Shopify and OpenCart.
Many businesses use the Lightning Network to offer their customers the benefits of instant payments and microtransactions. These include Finance, Gambling & Gaming, and Rewards & Earning programs.
Companies that provide financial services range from crypto exchanges to derivatives trading. Some companies have added Lightning Network implementation to their existing services, and others have launched using the Lightning Network as their base.
For example, crypto exchanges like Bitfinex and OKEx, have added the Lightning Network to their platforms because it offers low fees and instant payments. This makes it a more attractive option for users that do not want long settlement times.
An exchange like Boltz, which has native Lightning Network support, allows users to exchange their lightning BTC for on-chain BTC. Or they could exchange their sats for other altcoins. The platform does not require user registrations.
Casinos & Video Games
Many crypto casinos have contributed to Lightning Network adoption. They allow users to bet small amounts and receive their winnings instantly.
For example, BC.GAME, a crypto gambling service, allows users to bet with sats and receive their rewards quickly.
Furthermore, the gaming-orientated wallet, ZEBEDEE, allows users to earn SATS by playing video games. Gamers can stake sats in Counter-Strike: Global Operations and receive rewards depending on their performance during a match.
Rewards & Earning
Some companies allow users to earn BTC by performing certain tasks on their platform. Others reward users with BTC if they spend a certain amount of fiat currency.
For example, Fold, a Visa debit card service, rewards users with sats when purchasing the card. Additionally, they run competitions where users can win 1 BTC. They also offer their customers exclusive offers that allow them to receive higher BTC rewards.
Moreover, Tippin.me is a browser extension that allows users to send and receive tips on Twitter. Users can tip a content creator or support a social cause using sats.
The Current State Of Lightning Network Adoption
It is difficult to determine accurate figures for Lightning Network adoption since its launch. This is due to the built-in privacy features of the network. Users in payment channels do not need to make their channels public on the network. They can keep their channel from appearing on ACINQ’s Lightning Network Explorer.
Accordingly, network adoption can only be estimated based on data from wallet providers and exchanges with Lightning Network implementation. Public channels do, however, provide some insight into the general growth of the network.
Additionally, the network’s BTC capacity shows the investments users have made. And looking at the transaction volume on public channels indicates how frequently users transact using the network.
Global Lightning Network Adoption
The Lightning Network currently has 15762 nodes and 74342 channels. Most of these nodes are in North America and Europe, but there are also participants worldwide. Data from Wallet of Satoshi shows that 10% of their Lightning Network users are from Nigeria and around 8% from the Philippines.
Additionally, data from Bitrefill indicates that users from developing countries prefer using the Lightning Network instead of the main Bitcoin blockchain. Bitrefill’s Lightning Network payment count shows the proportion of users that use the network in their respective countries: El Salvador (90%), Brazil (40%), Nigeria (35%), and South Africa (25%).
More and more users globally are using the Lightning Network, and there is clear room for growth in developing countries. The Lightning Network is transforming Bitcoin into a practical form of money.
Lightning Network adoption has steadily increased since its launch in 2018. Developers and businesses have provided a technical foundation for the network’s implementation in the future.
El Salvador’s use of the Lightning Network to make Bitcoin legal tender is one use-case of the Lightning Network’s potential. Companies have leveraged micro and instant payments to enhance their services.
It is only a matter of time before the Lightning Network disrupts the world’s notion of money and revolutionises how people pay for services in the future. To learn more about the network, read our article on The Bitcoin Lightning Network Explained: How It Works Plus Its Pros & Cons.