The Bitcoin Lightning network has shown signs of lost momentum across several statistical metrics.
According to several key metrics pulled from BitcoinVisuals, the Lightning network, Bitcoin’s main off-chain transaction solution touted as a potential remedy to scaling issues, appears to have lost momentum in growth and maturity. It terms of number of active nodes the network experienced consistent growth in the first part of this year, growing from 2,329 at the beginning of the year to 4,120 at the beginning April, approximately a 77% growth over those three months. As of August 19th, the node count stands at 4,744, a much more modest 15% growth over a 50% longer timeframe.
In terms of channels, however, the network has seen a net decline. At the start of the year, the network claimed 17,348 total channels, with a rise to 39,200 three months later, a growth of 126%. However, in mid-August that number had declined to 32,142, 82% of its previous high. This data holds consistent with average channels per node as well. Similarly, the total capacity of the network rose 101.5% from 525.803 BTC in January to 1,059.497 BTC at the beginning of April, only to fall 21.6% to 830.129 BTC in mid-August, with fiat valuations peaking at $12.25 million in mid-July, down to about $8.4 million presently. The average capacity per node has not seen as significant a rise and subsequent drop.
Additionally, the number of cut channels, or channels connecting between nodes, has grown from 522 at the beginning of the year to 1,385 presently, with a relatively consistent percentage of 22-28% of the entire network during this same period. This means that 28.8% of the networks channels are required for other nodes to have a path, up from a more recent low of 19.2% in late March.
Litecoin’s Lightning network faring worse as technical hurdles still face the technology
The Lightning Network is economically nonsensical. Keeping $5m locked up online in hot keys, subject to a potential hack, only to earn $20 per month, is not a good risk-reward trade-off.https://t.co/0PXeqq0r3G
— Emin Gün Sirer (@el33th4xor) August 22, 2019
In addition to Bitcoin, Litecoin, which debuted a similarly-touted Lightning network, has seen limited success, with only a 250.96 ($18,573.19) capacity at time of writing, and only 143 nodes with active channels. This mirrors, on a more dramatic scale, the trajectory of the Bitcoin version of the network. The relative stalling of Lightning may be in part related to the relatively limited profitability, which is reportedly very low at present, particularly considering the associated security risks and capital required. Andreas Brekken of Shitcoin.com famously ran the network’s largest node, later concluding that the most profitable avenue for a node operator came from using the node’s name as advertising, rather than from profit for processing transactions.
The technical complexities in running a Lightning node, maintaining proper channel connections, keeping connectivity, taking security precautions, etc. may pose a challenge to the less technically-adept or motivated users. This has led the rise of various more user-friendly wallets and services that implement the trade-off of requiring the user to trust the service with their funds. While this may provide a welcome reprieve from technical difficulties and a necessary step to wider adoption, the addition of trust to the equation reverts Bitcoin to a bank-like system which requires trusting a third party, arguably challenging the core offering of cryptocurrency. By contrast, cryptocurrencies such as Dash and Bitcoin Cash prioritize using small payments on the main chain. This allows users to use light client wallets to maintain full control over their funds while not requiring them to run a full node.
This is hilarious. Ivan on Tech admits that using Lightning Network bank-wallets ⚡️ are centralized and that most people will use them because that is how mass-adoption works. So custodial bank-wallets are okay on BTC/LN now, right? So much for decentralization. 🤷🏻♂️ pic.twitter.com/cobfV6FYII
— David Shares (@DavidShares) February 25, 2019
Bitcoin’s store of value proposition remains its selling point, but how strong is it?
Challenges to off-chain scaling may be a significant contributing factor to Bitcoin’s transition towards more of a speculative asset, touted as a store of value. Marcus Swanepoel, CEO of the Luno cryptocurrency exchange, recently noted that 90% of Bitcoin usage is speculation. However, this store of value proposition may not yet be entirely realized either. According to a recent analysis by The Block, Bitcoin has seen significant volatility, 12.4% 30-day annualized, over the past half-decade. This compares to 2.5% for gold, which at present remains a much more reliable store of value.
Dash has maintained a strong user experience as a payment system, with fees consistently in the fraction of a cent range and all transactions now instant by default, however it has also made significant strides in applicability as a store of value as well. With the activation of ChainLocks, Dash is now protected against 51% attacks, using the masternode network to support miners in protecting against mining attacks. This has drawn accolades from industry figureheads such as Andreas Antonopoulos, who views the technology as “smart way of” securing the network, and Dash Core’s CEO Ryan Taylor has claimed that now Dash is more secure than Bitcoin.