The amount of bitcoin (BTC) locked in payment channels of the Lightning Network, a Layer 2 payment network built on top of the Bitcoin blockchain, has reached record highs.
According to The Block Research, the payment channel capacity on the Lightning Network has increased 63% from the start of 2022. Currently, the network holds more than 5,490 BTC, which is valued at $128 million, compared to the 3,350 BTC recorded on January 1, 2022.
This growth comes at a time when the price of BTC is also rising, having increased by 38% on January 1 2022 at $16,500 to $22,800 on February 6 2022.
Capacity continued to increase during the bear market in 2022 as well, as we covered at the time.
Lightning’s growth is seen as a positive indication for the widespread use of Bitcoin transactions, with many BTC users in Africa banking on the network for cheap and quick transactions.
How Lightning Operates
The Lightning network was designed to scale the bitcoin network’s main layer. This layer is slow, built for security and size rather than speed. Lightning has its own set of rules, separate from the main Layer 1 blockchain, allowing for much faster payments and much lower fees.
The network achieves this by opening up channels off the main bitcoin blockchain where transactions occur. The resulting balances following those transactions can be seen between the parties without the balances having to be broadcast on the main bitcoin blockchain until a later time when the channel is ready to be closed.
Advantages of the network include:
- Instant payment – Payment speed measured in milliseconds to seconds
- Scalability – Capable of millions to billions of transactions per second across the bitcoin network
- Low fees
- Cross blockchains
By transacting and settling off-chain, the Lightning Network allows for exceptionally low fees which enables for emerging use cases such as instant micro-payments. With smart contracts, Lightning can settle the final balance of those payments into the base layer while ensuring that all transactions abide by the rules of the protocol.
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