The mainstream adoption of Bitcoin (BTC) may soon be a reality following the Lightning Network’s nodes doubling.
Bitcoin’s Scalability Issues
Data from Bitcoin Visuals suggests that the number of Lightning Network nodes grew from 4,000 – 5,000 between April 2019 and April 2020 before skyrocketing to over 10,000 this month. The growth stems from the network’s onboarding of major crypto exchanges and payment apps.
Bitcoin, a product of Satoshi Nakamoto’s 2008 whitepaper, was envisioned as the currency for a P2P electronic cash system.
Despite the novelty of its invention, BTC has been dogged by scalability issues. Constraints within its native blockchain have caused inefficiencies in the network’s processing of transactions. To alleviate this challenge, BTC adopted an additional layer, The Lightning Network.
BTC’s scalability issue means that increased usage constrains the network further, with transactions taking longer and becoming increasingly costly. As such, you would incur much more buying, say, a cup of coffee than it would take to produce it.
Ensuring BTC’s Viability In Payments
In mitigation, BTC enthusiasts have suggested several interventions. One of them is the forking of bitcoin’s blockchain to create new crypto akin to bitcoin cash. As bitcoin’s mainstream recognition is unparalleled, some hold that the Lightning Network’s adoption will enhance the crypto’s viability in payments.
The network routes transactions through a separate P2P system atop Bitcoin’s blockchain. This way, it alleviates the constraints on the leading network. Again, it enables sub-second transaction times while eliminating fees at the same time.
Among the Lightning Network’s early adopters is Bitfinex as the move saw it achieve faster deposits and withdrawals over its platform. Other exchanges, including Kraken, CoinCorner, and OKCoin, have since followed suit.
Paolo Ardoino Bitfinex’s CTO said they see open adoption of this unique technology. He reiterated that the network’s capacity in 2017 couldn’t compare with its current capabilities. To him, layering was enhancing both Bitcoin and Ethereum’s scalability, adding that in February alone, Bitfinex had processed 12,000 transactions over the Lightning Network.
Besides scalability, scarcity is the other obstacle preventing the mainstreaming of bitcoin. By design, bitcoin has a supply cap of 21 million coins which is anti-inflammatory. The inherent scarcity has increased the crypto’s attractiveness, with many terming it “digital gold.“
In the last year, BTC has rallied remarkably, seeing its value shoot from around $6,000 to $60,000. The crypto community can attribute this increase to the significant investments from companies such as Tesla and MicroStrategy. These investments have further cut Bitcoin’s circulation, thereby creating a liquidity crisis.
Decreasing Liquid Supply
Market intelligence firm Glassnode opines that only around 4.2 million bitcoins are in constant circulation. A research note dated December 2020 contends that about 78 percent of the circulating bitcoin supply is illiquid. It further asserts that the illiquid supply is outpacing the total circulating supply.
“As bitcoin proceeds to be more and more a store of value and investors increasingly make use of it as a haven asset to store wealth, the actual ‘liquid’ bitcoin supply can be expected to be considerably lower.”