Bitcoin has kicked off the year with strength, sitting at $29,400 on the first day of 2021, over 300 percent higher than on the same day in 2020. The past year has been one of accelerated recognition for Bitcoin as it has been increasingly talked about for its capabilities as a store of value in the eyes of a growing number of institutional investors.
But it wasn’t only Bitcoin that saw growth: the ecosystem surrounding the Lightning Network, too, has seen a number of developments.
Built on top of Bitcoin, the Lightning Network is a scaling solution that allows users to send and receive funds near-instantly and at minimal cost, by taking transactions off-chain. Launched into its beta phase in March of 2018, Lightning is often regarded as Bitcoin’s most promising approach to scaling transactions for daily use.
We took a look at the Lightning Network’s growth throughout 2020 and developments to look forward to in the coming year.
All statistics are limited to publicly available information on the Lightning Network and do not include private nodes and channels. For the numbers below, we used available data from 1ML.com and BitcoinVisuals.com.
January 1st, 2020: 863.014 BTC ($6,208,128)
January 1st, 2021: 1,056.36 BTC ($30,656,543)
The public network capacity describes the amount of bitcoin that is currently locked up in the Lightning Network. Since January last year, that number has increased by 24 percent, which, in U.S. dollar terms, translates to an increase of almost 400 percent, from $6,175,356 a year ago to $30,656,534 at press time. As a result, larger amounts of value can be transferred via Lightning using smaller amounts of bitcoin.
January 1st, 2020: 10,938 (6,142 with active channels)
January 1st, 2021: 15,430 (8,115 with active channels)
The number of nodes on the Lightning Network can be used as a reference to the network’s overall health. Nodes keep Lightning “alive,” as they are the operators of the channels that transfer funds. The more nodes are active, the higher the network’s liquidity, and the easier it becomes to route transactions through the network.
It is worth noting again that since not all nodes are public, there is no way to accurately gauge the exact number of Lightning nodes.
January 1st, 2020: 35,379
January 1st, 2021: 36,417
Lightning transactions reach their final recipient by traveling through channels, which connect the nodes on the network. Each node can open multiple channels with other nodes, resulting in an interconnected structure through which transactions find the path to their destination.
While the number of public nodes on the Lightning Network has seen a considerable increase since 2020, the number of public channels has increased only slightly. Correspondingly, the number of channels per node has decreased from an average of 12.7 to 9.
Because Bitcoin’s price has increased considerably in dollar terms, however, during that same period, the U.S. dollar capacity per channel has tripled, growing from around $2,505 last year to $7,575 today.
It is worth noting again that since not all channels are public, there is no way to accurately gauge the exact number of Lightning channels.
Development work on and surrounding the Lightning Network has continued throughout 2020. On the forefront of technological breakthroughs was startup Lightning Labs, which launched a marketplace for channel liquidity, tackling one of the Lightning Network's major pain points: efficient capital allocation, and through that, increased overall liquidity. Dubbed “Lightning Pool,” the tool seeks to bring together node operators to trade access inbound and outbound Lightning channel capacity with each other.
A change in the Lightning Network's specifications further allowed for the removal of the previous channel limit of 0.1677 BTC, effectively lifting the Lightning Network out of its beta status by giving users the option to setup “Wumbo” channels.
Lightning entered 2020 with integrations from exchanges Bitfinex, Bitstamp, Hodl Hodl, and River Financial. Although often requested by Bitcoin users, many large trading platforms have not yet integrated Lightning into their services.
Lower priority when compared to other features may have been part of the reason why exchange adoption has been sluggish. Previously, Lightning’s limited channel capacity might have also complicated the integration for exchanges, which require large amounts of liquidity for their offerings.
Emerging as a Lightning-only alternative in 2020 has been LNMarkets, which, after closing a pre-seed round with investors such as Bitfinex, Fulgur Ventures, and Arcane Crypto, recorded record trading volumes on its Lightning Network-based Bitcoin derivatives exchange in November.
As for upcoming integrations, U.S. exchange Kraken announced in December that it would add Lightning support in 2021.
Lightning implementations aren’t limited to trading use cases, however, as can be seen in a number of integrations by Bitcoin businesses.
Strike, a mobile application kicked off by Jack Maller’s Zap that allows users to transact via Lightning using a debit card or bank account, has gained popularity throughout the year, as it transitioned to its public beta in summer.
Lightning in games, too, has seen growth: while development on Fortnite-like title Lightnite is expected to enter its alpha stage in early 2021, gaming platform MintGox, which launched in March of 2020, hosts regular livestreams and tournaments playing Lightning games such as Bitcoin Rally.
New efforts to introduce Bitcoin to existing games can also be observed, as tournament platform HangarSix aims to host competitions for Call of Duty players and a new tool by ZEBEDEE, dubbed “Infuse,” allows Counter-Strike: Global Offensive players to earn sats (short form for “satoshis,” the smallest unit of a bitcoin) while they play.
In November, Adam Curry, often called the “Podfather” for his early efforts in making podcasting popular, introduced Podcasting 2.0, an initiative for open and independent podcasting that uses Lightning-powered microtransactions to pay podcasters.
As a decentralized initiative, Lightning has no roadmap, so where the network is “supposed” to be at this point in time and whether it has been a success so far or not easy to assess.
Many have placed their hopes in the Lightning Network to become Bitcoin’s preferred scaling solution and facilitate microtransactions for everyday use. Whether that will happen remains to be seen, and just under three years into its existence, it might be too early to make a definitive judgement.
What can be said, however, is that Lightning has not only survived another year, but it has continued growing, as has the ecosystem surrounding the network; a sign that there is more to come.