The amount of bitcoin (BTC) locked in the 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, payment channel capacity on the Lightning Network has increased by 63% since the start of 2022. Currently, the network holds over 5,490 BTC, which is valued at $128 million, up from 3,350 BTC recorded on January 1. , 2022.
This growth comes at a time when the price of BTC is also on the rise, having increased by 38% on January 1, 2022 to $16,500 to $22,800 on February 6, 2022.
Capacity also continued to rise during the 2022 bear market, as we covered at the time.
Lightning’s growth is seen as a positive indication of the widespread use of Bitcoin transactions, with many BTC users in Africa leveraging the network for fast and cheap transactions.
How Lightning Works
The Lightning Network was designed to evolve the core layer of the bitcoin network. This layer is slow, designed for safety 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 channels off the main bitcoin blockchain where transactions take place. Balances resulting from these transactions can be seen between parties without the balances having to be broadcast on the main bitcoin blockchain until a later date when the chain is ready to be closed.
Network benefits include:
- Instant Payout – Payout speed measured in milliseconds to seconds
- Scalability – Capable of performing millions to billions of transactions per second on the bitcoin network
- Low fees
- Cross Block Chains
By performing off-chain transactions and settlements, the Lightning Network enables exceptionally low fees, enabling emerging use cases such as instant micro-payments. With smart contracts, Lightning can settle the final balance of these payments in the base layer while ensuring that all transactions follow protocol rules.
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