The Lightning Network is one of the most bullish developments the Bitcoin ecosystem has seen to date. And all the available metrics suggest that a healthy and vibrant network is brewing. However, investor Kevin Rooke took a closer look and found that the Lightning Network is probably even bigger than previously assumed. “Inaccurate comparisons and privacy features make it difficult to understand how big the Lightning Network is.”
Related reading | Bitcoin Lightning Network Hits Record Capacity
What does Rooke mean by that? Let’s find out.
The Lightning Network in numbers
A cursory look at the popular 1ml analytics platform tells us that, at the time of writing, The Lightning Network is comprised of 24,688 nodes, 64,577 channels, and a network capacity of 2,272.89 BTC. All of these numbers are up. “However, the Lightning Network is not a loan protocol, an AMM, or a store of value. Furthermore, the notion that Bitcoin is “locked” on the Lightning Network is misleading at best. ”
There are a number of DeFi protocols that have “locked” a much higher number of BTCs, and people mistakenly compare that number to the capacity of the Lightning Network. In DeFi, the funds are usually actually blocked and cannot be touched until the contract in question expires. With Lightning it looks very different:
As explained in the book Mastering the Lightning Network, funds added to the Lightning Network are not locked, but released. As soon as a new Lightning channel is opened, these funds can be sent in no time and almost free of charge anywhere on the Lightning Network.
And Kevin Rooke spoke on channels in an “Investor Letter” from June 28th:
There are currently over 51,800 channels relaying payments between 22,000 nodes, and 21% of these Lightning Network channels were created in the last 30 days.
On the surface, monthly channel growth of 21% seems impressive, but creating new channels is a slightly misleading metric as nodes often open and close new channels.
A more accurate measure of growth is that the total number of channels on the Lightning Network increased 10.8%, or over 5,000 channels, in the last month.
Compare that to the newer number we gave you at the beginning of the section and notice how the number of channels has increased in just a month and a half. That’s not all, consider the following:
Some nodes do not want their channels to appear on the Public Lightning Network chart and instead choose to open “unpublished” or “private” channels.
BTC price chart for 08/13/2021 on FTX | Source: BTC/USD on TradingView.com
Privacy doesn’t let us see how much money is going through lightning
Most of the transactions that take place within the Lightning Network are private. Only at the time of settlement between two parties are the final numbers registered forever in the Bitcoin blockchain. That means it’s impossible to know exactly how much money is flowing through Lightning on any given day. Or altogether.
Related reading | The Bitcoin community is celebrating the launch of the Crucial Lightning Network project
However, Rooke estimates that “despite the relatively high transaction fees and slow block times that make payments cumbersome, the annual on-chain volume is almost six times the value trapped in the Bitcoin network.” That’s on the main bitcoin blockchain. On the other hand:
The Lightning Network is designed for fast and inexpensive payments. So if there are already 85 million US dollars in Bitcoin in the Lightning Network, it would make sense to increase the annual payment volume at least 6x higher or at least 510 million US dollars.
That is an absolute minimum. And things are just beginning. In September, El Salvador’s Bitcoin law will come into effect and the whole country will use the Lightning Network. And keep in mind that about a quarter of El Salvador’s GDP comes from remittances. So it’s not hard to believe that Salvadorans all over the world will start doing this too. In addition, Jack Dorsey’s projects are exploring both Square and Twitter into Lightning integration.
In fact, Dorsey posted this tweet yesterday:
However, every account on Twitter can be linked to a Lightning wallet …
– jack⚡️ (@jack) August 12, 2021
And that’s just the tip of the iceberg. For more impressive numbers and prints, be sure to read “The Lightning Network Is Bigger Than You Think”.
Featured Image by Anuraj SL from Pixabay - Charts by TradingView