A 13% decline in the Lightning Network’s capacity over the past month sparks concerns about its stability and growth trajectory.
Unfavorable news for bitcoin In fact, during the past month, the Lightning Network’s capacity has decreased by 13%.
It had been above 5,400 BTC since the beginning of February, reaching an all-time high of 5,520 BTC on 18 April.
Since then, it has generally been over 5,400 BTC, but on August 5th, it abruptly dropped to 4,750 BTC, a decline of 13%. Since that time, it has stayed at or about 4,700 BTC.
The decrease last month was a huge one, wiping out all of last year’s growth. The current level is significantly lower than the 5,000 BTC it hit in October of last year.
The newest Bitcoin news are additional Lightning Network metrics
This drop is unusual not only because it occurred quickly within one day, but also since the LN, bitcoin’s primary second layer, is often used continuously.
As an illustration, the number of nodes increased from 17,000 to 17,600 throughout the course of the past year, reaching an all-time high of nearly 18,200 in June.
Over the past 12 months, the number of channels has decreased from 85,000 to 68,000, with a further dramatic decline on August 5 from 70,300 to 68,900 in a single day.
It is safe to believe that it was caused by the closure of a small number of interconnected nodes and channels given that the abrupt drop happened in a single day and that all metrics then rebounded to relatively steady levels. The cause, though, is unknown.
The market value of Bitcoin barely changed on August 5th, indicating that price changes are not to blame for the decline.
Thunderbolt Network
The main second layer of Bitcoin is called the Lightning Network, or LN for short.
It was developed to make it possible for BTC transactions to be carried out swiftly and for a very low price.
Currently, a transaction on the Bitcoin network costs about $1 on average, but in June, for instance, it cost more than $2. It temporarily rose beyond $30 in May as a result of the surge in Ordinals.
Additionally, it usually takes at least 10 minutes, if not longer, for a transaction to be validated on the bitcoin chain.
Contrarily, LN doesn’t add transactions to the blockchain. Alternatively, it merely logs the creation and shutting of channels on the blockchain, after which users are free to conduct as many BTC transactions as they choose without having to add them to the blockchain.
In reality, LN transactions are P2P, immediate, and require payment of fees to an LN node. When using your own node, these absurd fees—which are frequently in the range of cents or thousandths of a dollar—are effectively eliminated.
LN is typically used for small-value transactions, when even a $1 cost might add up.
It’s possible that this is the reason why on-chain transactions are still preferred by those moving large amounts and their use has considerably decreased recently.
Transfers of bitcoin between exchanges
LN is occasionally used to transfer money instantly to and from exchanges due to how swiftly bitcoin transactions are carried out using it.
It is not a coincidence that Bitfinex, one of the first cryptocurrency exchanges to support LN transactions, announced that since the year’s beginning, it has handled LN deposits and withdrawals totaling 912 BTC.
However, the number of bitcoin exchanges and the quantity of BTCs still available on exchanges both experienced a sharp decline in 2023.
Therefore, the slight reduction in LN usage is more than expected. However, the abrupt decline on August 5th is exceptional.
The likelihood that the aforementioned indicators may hit new highs in the event of a new bull run is high, not least because bull runs boost the volume of transactions produced by tiny BTC holders, for whom on-chain fees are likely to have a big effect.
