Now, the Lightning Network also allows for the creation of assets

In recent years, Lightning Network (LN) has provided a solution to the issue of frequent congestion in the Bitcoin network. In particular, it avoided having to travel via the mempool, which was specifically the one that regularly became crowded, by permitting off-chain BTC transactions.

However, recently, the issue has reemerged as a result of Ordinals and BRC-20 tokens, which are digital assets that may be mined on the blockchain of Bitcoin. In actuality, these assets could only be mined and exchanged on-chain, necessitating a trip through the mempool and the Bitcoin network. The Lightning Network could once more be employed to find a solution.

Indication from Lightning Labs

Lightning Labs has revealed the release of the updated Taproot Assets, which enables the issuance of assets on both the Lightning Network and Bitcoin.

With the help of this new protocol, it will be possible to transport tokens created through Bitcoin network mining to LN, just as it has been done for BTC for some time.

The title of the official Lightning Labs post that introduced the new protocol, “Mint the Future with Taproot Assets v0.2,” is not a coincidence; shifting crypto assets from the Bitcoin network to LN essentially ushers in a new age.

Just consider the phenomenal growth that Ethereum-based currencies have experienced over time.

Although technically speaking they are inscriptions in this particular instance rather than actual tokens, the functionality is the same.

Ethereum would likely remain small without USDT and the other stablecoins, but on the Bitcoin network, new tokens cannot be created.

Theoretically, many DeFi protocols, especially those that permit the development of decentralized stablecoins and exchanges, might migrate to LN now that Taproot Assets v0.2 is available.

v0.2 of Taproot Assets

The Taproot Assets Protocol (TAP) daemon, formerly known as Taro, allows for the use of the Taproot Assets v0.2 protocol.

Developers who want to create, send, receive, and find assets on the Bitcoin blockchain can use this daemon’s feature set.

TAP is now only available on the testnet, but mainnet support is shortly to follow.

The issue with previous asset issuance algorithms on the Bitcoin blockchain was that they particularly inefficiently wrote metadata directly into the block space.

Blocks began to fill up faster than they should have, which had the unavoidable effect of driving up transaction fees on the Bitcoin blockchain.

This demonstrated that these protocols were not at all intended to handle high volumes of transactions.

On the other side, Taproot Assets was created to handle the large-scale, arbitrary issuance of assets and their transfer onto the Bitcoin blockchain efficiently.

In actuality, it is intended to operate primarily off-chain, where the issue of congestion and exorbitant fees is inexcusably absent.

The primary answer is to enable the creation and/or transfer of an infinite number of assets through a single on-chain transaction. In other words, the majority of transactions occur off-chain, placing little to no load on the blockchain and incurring minimal fees, compared to the minimal transactions that happen on-chain.

Thus, it is still possible to take advantage of the blockchain’s permissionless features while still enabling scalable asset generation and transfer without being subject to the blockchain’s inherent restrictions and limitations.

From Lightning Labs:

Users will soon be able to integrate their assets into the Lightning Network for instant, high volume, low-fee transactions. This leverages existing network effects and the install base of wallets, exchanges, and merchants, instead of needing to bootstrap a new ecosystem from scratch.

Lightning Network (LN) DeFi

Numerous important DeFi protocols could be replicated on LN using this new protocol.

Many stablecoin issuers could also release their tokens on LN in addition to this.

It is vital to remember that the first and most significant stablecoin, USDT from Tether, was created exactly on the Bitcoin network back in 2014, before Ethereum had even been created.

More precisely, Omni (Omni Layer Protocol), a platform for the creation and exchange of crypto assets built on top of the blockchain of Bitcoin, is where the first USDT tokens were released.

Even now, despite the majority are on Tron and Ethereum, there are still close to 900 million USDT tokens in use on Omni.

Given the iFinex group’s prior support for LN, it is simple to predict that sooner or later USDT will also be issued on Taproot Assets or a similar platform.

With the help of solutions like these, stablecoins will soon be available on Lightning Network. At that time, Lightning Network will be prepared to be extensively adopted as a network for decentralized finance as well.

Even DefiChain, Kava, and Mixin now outperform the Bitcoin network in terms of TVL in the DeFi sector, in part because there is really only one protocol on Bitcoin that has a significant TVL: Lightning Network.

However, its TVL might skyrocket if freely mineable assets were added to LN.

Congestion with Bitcoin

Up until the middle of April, the blockchain for Bitcoin had an average of about 300,000 transactions every day.

This average has surged, going exceeding 600,000 transactions in just a few days due to the surge of Ordinals and BRC-20 tokens. The number of transactions on the Bitcoin blockchain has increased to around 500,000 every day, with a peak of over 650,000.

The mempool queue of transactions waiting to be validated has become congested due to the fact that there is a physical limit to the number of transactions that may be recorded every day on the blockchain of Bitcoin.

Since the miners who confirm transactions by entering them on the blockchain chose the ones that make them the most money, i.e. the ones with the highest fees paid by those who originate them, the costs have sharply increased as a result.

The average transaction price increased from $2 in mid-April to roughly $4 in the present, but on May 8 there was a startling leap above $31.

Only layer-2s—which thankfully already exist—can avoid requiring individual transactions to be added to the blockchain, and LN is by far the most important of these.

It is no accident that Lightning Network will ultimately be the only option, even for Ordinals and BRC-20.

What the Lightning Network has to offer

For individuals who want to use LN as a substitute for standard transactions on the Bitcoin blockchain, it offers two distinct benefits.

The first is that they can be authenticated relatively immediately because they do not have to wait in the mempool queue.

The second, more essential factor, is that their expenses are negligible, in some cases entirely forgivable.

Except when moving big quantities or large values, it is not practical to move Ordinals or BRC-20 tokens across the blockchain due to the enormous expenses involved.

As a result, the Lightning Labs solution is advantageous to the consumers of these new assets on the Bitcoin blockchain, and it is anticipated that it will be widely used to make them cheaply and easily transferred.

Although everything will still be based on the blockchain, Bitcoin’s future is mostly off-chain.