Bitcoin Network Usage Drops, But That May Not Be a Bad Thing

Bitcoin has seen a significant drop in transactions. However, that figure might soon not mean what it used to.

Zeus in the night, holding up a bitcoin and the other hand, is releasing lightning to power the bitcoin.
Created by Kornelija Poderskytė from DailyCoin
  • Daily unique transactions on the Bitcoin network have seen a significant drop.
  • Despite this fall, the reduction could provide an impetus for development.
  • The Lightning Network promises to solve Bitcoin’s scaling problems. 

Scalability issues remain the bane of most major blockchain networks, most recently, Bitcoin. The biggest crypto has seen a drop in network usage as it continues to struggle with network congestion

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On Thursday, May 18, the number of unique addresses performing transactions daily dropped to less than 800k. This marks a 22-month low for Bitcoin, the lowest level since July 2022

Source: Santiment

However, this drop might not necessarily signal the decline of Bitcoin’s utility. As scaling solutions increase in popularity, Bitcoin’s Network could naturally see a drop in activity. 

Lightning Could Ease Bitcoin’s Congestion Issues

The drop in unique daily transactions doesn’t account for transactions via the Lightning Network, Bitcoin’s Layer-2. For some, this scaling solution holds the keys to making Bitcoin transactions faster and cheaper. 

With the growing popularity of scaling solutions, Bitcoin’s congestion issues could be relieved. This would, however, likely result in a natural decrease in the base layer’s transaction activity as more users migrate to second-layer solutions.

Still, the recent drop in transactions on the Bitcoin network has not been accompanied by a corresponding activity on the Lightning Network. This indicates that, despite its advantages, Lightning Network still has hurdles before it can reach mass adoption.

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For instance, technical challenges, such as routing issues and channel capacity constraints, have been a sticking point for some users. Furthermore, setting up a Lightning node can be daunting for non-technical users, posing another barrier to widespread adoption.

Bitcoin Struggling With Ordinals 

This sudden decrease in unique transactions is likely due to the rise of ordinals. These inscriptions, Bitcoin’s answer to Non-Fungible Tokens (NFTs), are becoming increasingly popular. However, their popularity comes at a price, helping escalate the network’s gas fees. 

As gas prices continue to climb, more and more users start avoiding transactions that are not necessary. This is likely the reason behind the noticeable reduction in overall network activity. 

On the Flipside

  • In May, Litecoin hit a record amount of transactions thanks to rising fees and congestion on the Bitcoin network. 
  • The Bitcoin community is not in agreement with how to deal with ordinals. In May, one core developer’s suggestion to ban ordinals started a civil war in the community. 

Why This Matters

Bitcoin’s scaling issues could significantly impact the dominant crypto in the future. As the community tackles the scaling issues, it is crucial to understand how they impact the network. 

Read more about how Lightning can tackle the ordinals issue: 

How Lightning Network’s Taproot Upgrade Solves BRC-20 Issues

Read about the latest trends in the retail use of DeFi

Uniswap Survey Uncovers DeFi Barriers, but Users Keen to Experiment

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
David Marsanic

David Marsanic is a journalist for DailyCoin who covers the intersection of crypto, traditional finance, and government. He focuses on institutionalized crypto entities like major cryptocurrency exchanges and Solana, breaking down complex topics into easy-to-understand writing. David's prior experience as a business journalist at various crypto and traditional news sites has enabled him to maintain a critical approach to news while adhering to high journalistic integrity standards.