The fact that there is a limited capability of the Bitcoin network to handle large amounts of transaction data in a short span of time makes it ill-equipped for mass adoption, the critics say. While Visa manages about 1,700 transactions per second, Bitcoin processes just 4.6 transactions per second.
Bitcoin’s scalability problem means that the more the Bitcoin network grows, the more unmanageable it becomes. What’s more, each user that joins the network adds to the scalability problem – making it increasingly slower. To solve this problem, the Lightning Network has been developed to increase throughput and transaction speeds on Bitcoin.
The Lightning Network is a second-layer protocol designed to facilitate micropayments at scale (and in doing so bring bitcoin back to one of its original intentions as a peer-to-peer payment network.) By enabling off-chain bitcoin transactions, the network enables the bitcoin protocol to decongest and reduce associated transaction fees. Different parties can also interact with each other without the need for nodes, or a centralized entity, to approve each action. This substantially reduces transaction costs and creates a network for decentralized interactions.
While rising Bitcoin prices grabbed the headlines last year, the Lightning Network was quietly gaining traction. As a measure of its success, one can look at the amount of bitcoin locked into the Lightning Network. Locking bitcoin for the network allows the buyer or seller of a product to open a payment channel. Once the bitcoin is locked in, the recipient is free to issue invoices to the sender. If there is a need to keep the channel open, then locked bitcoin has to continuously be provided to the network.
In the first eight months of 2021, the Lightning Network surged from 1,000 to 3,000 BTC locked, from January to mid-October. As of June 1, 2022, the locked bitcoin in the Lightning Network stood at 3,950 BTC, according to data provided by decentralized finance analytics platform DeFi Pulse.
Lightning Network is expanding
Last year, El Salvador made Bitcoin legal tender and the country is now serving as a laboratory for Lightning Network in use, as citizens of the country can make payments from their chivo wallet to any merchant accepting Bitcoin in the country. Additionally, from the moment El Salvador announced Bitcoin as legal tender, interest in the Lightning Network in the region is growing, as evidenced by Strike, the world’s leading digital wallet built on Bitcoin’s Lightning Network, which launched in Argentina this year.
The benefits of the Lightning Network are particularly significant in developing economies that have a high reliance on remittances and a strong dependence on the US dollar. According to the World Back, personal remittances in El Salvador amounted to almost $6 billion in 2020, representing 24% of its gross domestic product. This is one of the highest ratios in the world. While traditional money transfer companies are notorious for levying expensive fees, and have dominated the remittance market, the blockchain industry is perfectly positioned to disrupt the payments industry, given the low cost and high speed of asset transfers. Adopting Bitcoin as legal tender and introducing the Lightning Network to citizens in El Salvador demonstrates exactly how this can take hold.
Major corporations such as McDonalds and Starbucks are also adopting the technology to facilitate Bitcoin payments for everyday purchases such as a cup of coffee. Jack Mallers, CEO of Strike, describes the Lightning Network as the best monetary network in human history, saying ‘it’s open, and will disrupt the world quicker than anyone thinks. Open networks win.
Bitfinex was among the first major cryptocurrency exchanges to integrate the Lightning Network on its platform. Indeed, the Bitfinex Lightning node is one of the biggest and most well-connected nodes on the Lightning Network with 130 BTC inbound and 536 outbound capacity. Bitfinex users can now deposit and withdraw Bitcoin from their accounts simply by converting their BTC to Bitcoin Lightning Network (LN-BTC).
Bitfinex has also invested in Lightning Network projects such as RGB protocol and OmniBOLT, with the aim of bringing digital assets and other layer-3 technologies to the Lightning Network. OmniBOLT is the first specification of a stablecoin for Lightning Network, based on Omni, and is designed to facilitate different protocols and permissionless blockchains. RGB and OmniBOLT are building networks that allow for the issuance, sending and receiving of digital tokens through the Lightning Network.
Bitcoin’s capacity to disrupt the incumbent payments industry is not just restricted to the Lightning Network. In Bitfinex Pay we’ve created an intuitive and seamless way for online merchants to receive payments in crypto. Bitfinex Pay enables merchants to be easily equipped to support crypto payments as increasing numbers of consumers become more comfortable with paying for goods and services using digital tokens. In addition, Bitfinex Pay has the capacity to accept Tether tokens (USDT) and Lightning Network BTC (LN-BTC), delivering a frictionless payment experience that addresses Bitcoin’s pain points around volatility, scalability and speed.
Furthermore, a new feature, auto convert, enables merchants to automatically convert Bitcoin, Ethereum, Avalanche (AVAX), Dogecoin (DOGE), Litecoin (LTC), Polygon (MATIC) and Solana (SOL) into USDT, thereby removing volatility risk. For example, a merchant choosing to auto-convert BTC to USDT will have the payments it receives automatically converted into the stablecoin, via a market order made to the merchant’s exchange wallet.