- Bitcoin adoption in El Salvador has increased the number of channels on the lightning network.
- Bitcoin can process only seven transactions per second, making it inadequate as a form of payment.
- The lightning network can incentivize retail adoption as transactions on the scaling network are much faster.
Good things take time but too much time in the fast-paced crypto space can be detrimental to the adoption cycle. Bitcoin has evolved as a store of value, grabbing the attention of tech personalities like Elon Musk or Michael Saylor, among others.
Bitcoin was developed to facilitate trustless and censorship-resistant P2P transactions; however, Bitcoin could not perform currency functions because of its heightened volatility. Through the lightning network, developers propose scaling up transaction capabilities on the network.
Faster Than the Speed of Light
Cryptocurrencies are entering a “coming of age” momentum after El Salvador made Bitcoin a legal tender. As a result, Bitcoin’s lightning network channel adoption is going parabolical. Since September 7th, the number of channels has increased by 2,000, totaling 73,000, adding up to a total of 24,000 BTC stored.
Alex Gladstein showed the efficiency of the Lightning Network after publishing a $5 transaction with a $0 transaction fee. Moreover, other Twitter threads show Bitcoin’s Lightning Network efficiency in El Salvador, regardless of people claiming it does not work. Furthermore, in 2021, the network capacity doubled after a nation-state onboarded the L2 solution, funneling in more users.
Facility and transaction speed is not a catalyzing factor for adoption. Instead, communal consensus will enlighten users of the benefits of using the Lightning Network to the detriment of Western Union or even bank transactions. El Salvador can operate as a country-wide test pilot for mass adoption. Jeff Booth, entrepreneur and tech investor, argues that retail can benefit from the Lightning Network and improve profits by 2%-3% by “cutting out Visa.” Moreover, the same presumptions arose after insider reports indicated Amazon could adopt Bitcoin as a payment method.
On The Flipside
- Bitcoin’s volatility hinders the token’s ability to become a used exchange unit.
- Data gathered from Arnhem Bitcoin City shows that people are less likely to spend Bitcoins despite developing a lightning network payment infrastructure.
The Solutions Vs. The Lightning Network
The Lightning Network is the scaling solution for effortlessly achieving financial sovereignty. Yet, its methodological input raises questions about security and privacy. In an article, Shinobi, the host of the Block Digest, argues the lightning network has its limitations outside the 2-of-2 multisig address interdependence. Yet, Layer 2 is the only possible solution to scale Bitcoin.
The Lightning Network requires trust to be established between the two transactional parties. It requires users to develop the same guarding principles when using centralized services. The introduction of penalty keys is a partial solution but is contrary to the underlying usability standard of transacting on the blockchain.
Furthermore, mobile phone storage is a crucial element to maximize the efficiency of the network. With transactions having to be stored on the mobile, the mobile wallet interferes with other space-consuming apps, which then either forces the user to close the Lightning channel or pay for additional space. Either way, it goes contrary to the purpose of the network. Thus, the Lightning network faces partial scaling issues until the ANYPREVOUT protocol is rolled out.
On-chain fees can affect channel deployment as they are also subject to a 10% establishment fee. High fees can force users to either experience latency transactions, and as more people use the network, the price floor will increase exponentially. Moreover, using Bitcoin L2 solutions comes at a risk of divulging personal IP, which is contrary to how blockchain operates. As Shinobi notes, Tor is the only current solution to maintain network secrecy; however, the servers are partly centralized, adding supplementary concerns for using the network.
As Bitcoin’s hegemony grows outside institutional debates and becomes used and understood by the mass audience, Lightning Network protocol improvements will be hurried, if and only if there is usage demand from retail consumers and users.
Why You Should Care?
The Lighting Network might show limitations in seamless implementation; however, the fact that a solution is readily available and constantly developing and is actively used by people shows promising signs for the future.