Lightning Network's Capacity Hits ATH: 5,490 BTC in Payment Channels

Lightning Network capacity, which shows the amount of bitcoin locked in the network’s payment channels, reached a new all-time high of 5,490 bitcoin ($128 million). The increase, which comes after a major decline in LN capacity in the wake of FTX’s collapse several months ago, suggests the adoption of BTC transactions is rising.

Lightning Network Capacity Has Risen 63% Since 2022

Lightning Network (LN) capacity hit an all-time high of 5,490 bitcoin ($128 million), rising 63% since the start of 2022 when it stood at 3,350 bitcoin (BTC). The LN capacity refers to the total number of bitcoins locked in the network’s payment channels.

The surge marks a sharp rebound since November 2022, when the collapse of the crypto exchange FTX resulted in a significant slump in LN capacity to roughly $83 million. The recovery, which comes after Bitcoin recorded its second-best January in 10 years, is a positive indicator of the adoption of BTC transactions.

Lightning Network refers to a layer-2 payment protocol built on top of the Bitcoin blockchain that facilitates smart contract functionality for the primary blockchain. The protocol aims to enable faster, cheaper, and more scalable transactions by allowing for off-chain transactions between users, resulting in a reduced load on the underlying blockchain. In addition, the network has been one of the key drivers of BTC adoption in recent years.

How does Lightning Network work?

Lightning Network’s efficiency in addressing Bitcoin’s scalability challenges has allowed the network to grow rapidly since its launch in early 2018. The LN currently has more than 16,000 active nodes and over 76,000 unique channels connecting nodes across the globe.

This represents a significant increase from previous years and is a testament to the growing adoption and popularity of the Lightning Network. Moreover, the network has also seen growing interest from businesses and individuals looking to use it for fast and low-cost micropayments and other transactions. Last year, Jack Dorsey’s Cash App launched a feature that allows users to receive BTC payments instantly through the Lightning Network.

The network’s payment channels are central in enabling fast, low-cost transactions. A channel is created when two users deposit Bitcoin funds into a smart contract, creating a balance sheet that tracks the amount owed by each user. Once the channel is open, users can make unlimited off-chain transactions without causing activity on the underlying network.

This article originally appeared on The Tokenist

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