Bitcoin Lightning Network: Why ‘apples to oranges’ comparisons aren’t helpful

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Not only Bitcoin, but also the Lightning Network, have grown at an exponential rate in recent months (LN). In fact, over the same timeframe, it has seen a significant expansion of both its payment channels and locked BTC, indicating the technology’s growing importance.

The Lightning Network is a layer-2 scaling solution that is built on top of Bitcoin’s base layer. It enables the creation of channels between peers, allowing final payment settlement to be postponed until a later date. Furthermore, it off-chains small and infrequent transactions that are inexpensive.

The total value locked (TVL) in the Bitcoin Lightning Network has increased by 1,273% in a year, hitting $165 million on 7 October. The figures for the same were $12.05 million last year, according to DeFi Pulse. What’s more, a 47% hike in the TVL has been seen in the past month alone, highlighting its popularity.

However, this TVL is comparatively far lower than the double-digit billion values that L2 solutions built on Ethereum and other DeFi protocols have currently locked. It’s an “apples to oranges comparison,” according to Ryan Gentry, the Business Development lead at Lightning Labs. Speaking on the latest edition of the Unchained podcast, the developer explained,

“This is a full reserve system like there is no notion of debt, there’s no money multiple, there’s no additional tokens that are locked in it is all a hundred percent for reserve.”

On the contrary, he added, the whole point of DeFi is to carry out over collateralized lending through which users can multiply their money and increase the total value. So, while DeFi has clearly found its focus in the lending business, LN has been made for something else entirely.

“Lighting has always been very focused on transferring Bitcoin from peer to peers. It’s fulfilling the vision of Bitcoin as peer-to-peer electronic cash.”

According to the executive, LN does not have a use case for lending, trading, or debt because the network is purely focused on payments, value transfers, remittances, micropayments, and tips.

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While the network’s support for El Salvador’s Chivo wallet has resulted in a flurry of transactions over the past month, Twitter’s use of Lightning to tip content creators on the platform has only increased its usage.

These factors have resulted in the network’s transaction volume being a far better predictor of adoption than its TVL. Gentry argued that “the whole point of lightning is capital efficiency.”

From August 2021 to September 2021, the number of users increased from 87,000 to 9.7 million. According to a recent report by Arcane Research, this amounted to a growth rate of 11,164 percent. It also predicted that by 2030, total remittances completed on the network would be worth approximately $48 billion, with a total of 1.48 billion transactions.

It is no surprise then that the CEO of MicroStrategy, Michael Saylor, recently referred to Lightning as “the future of global payments.”

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