The total public capacity of Bitcoin’s Lightning Network dipped below 5,000 BTC this week and is currently hovering around 5,060. The dip is a 7% decline from one month ago and a 10% decline from the network’s high in March.
Lightning is Bitcoin’s most popular Layer 2, or off-blockchain scaling solution. To enter the Lightning Network, users deposit BTC into contracts that subsequently allow routing of BTC throughout the network without incurring on-chain fees. Lightning transactions are far faster and cheaper than regular bitcoin transactions, yet they don’t enjoy the full decentralization and security of Bitcoin’s blockchain.
Capacity refers to the maximum amount of money that a user of the publicly accessible Lightning Network could route at any particular time.
After years of growth including a sextupling of BTC capacity over the past three years, the Lightning Network has stagnated for the past nine months.
In addition to lower money at stake, the number of publicly viewable channels has also declined since its capacity high in late March. Channels have decreased from 73,597 to 59,458 today — a 19% decline in nine months.
Why has the bitcoin capacity of the Lightning Network declined?
While several exchanges, including Binance, Kraken, and Bitfinex, have already implemented Lightning Network, others have promised to yet never followed through. Coinbase, for example, promised Lightning support nine months ago and it still hasn’t happened.
Some attribute the decaying interest in Lightning to the emergence of other Bitcoin primitives, such as Ordinals-based NFTs, BRC-20s, or the Bitcoin-friendly social network Nostr. Others blame the decline on problems with Lightning itself, including several major security vulnerabilities.
Others blame design considerations that cost unsuspecting users extra fees for seemingly simple payments. Requesting extra BTC capacity, for example, requires extra on-chain transaction fees — which can be costly to everyday users until Lightning developers complete work on splicing.
In any case, there’s still nearly a quarter of a billion dollars worth of liquidity available to route payments across Bitcoin’s Lightning Network. Fans are hopeful that 2024 will renew interest in its scaling solutions for smaller, cheaper, faster, and less secure bitcoin transactions.