Bitcoin (BTC), Lightning Network, and El Salvador

Bitcoin (BTC), Lightning Network, and El Salvador

By Michael @ CryptoEQ | CryptoEQ | 28 Sep 2021


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The Crossroads Newsletter

CryptoEQ® and 7investing meet you at the crossroads of Stocks and Cryptocurrencies.   

 

Simon Erickson, 7Investing: “El Salvador is certainly the first country in the international community to recognize this as legal tender. What’s that going to mean for Bitcoin? What’s that going to mean for El Salvador?”

Spencer Randall, CryptoEQ: “So the El Salvadorian government had to create a new app, Chivo, and this app allows the residents of El Salvador to access the Lightning Network (LN) on Bitcoin. So LN is is a layer to something that sits atop Bitcoin’s layer one infrastructure. Lightning is needed here to facilitate all the micropayments, the small payments, and the speed of transactions is needed for something like the size of a nation to transact on top of Bitcoin. But I’d say overall, it was a successful launch. We see the LN being used as intended. 

It has only been ~3 weeks since Bitcoin was adopted as legal tender in El Salvador (Sep. 6) but in just that time close to one-third of Salvadorans have begun using the official El Salvadorian Bitcoin wallet, Chivo. For perspective, more El Salvadorians are using Chivo (~2.1 million) than any other bank in the country. The majority of El Salvadorians lack access to the traditional banking system so the adoption of Chivo, Bitcoin, and the Lightning Network is an encouraging sign for the underserved.

Bitcoin’s second layer is called the Lightning Network (LN). The Light­ning network enables users to open multi-signa­ture payment channels with each other in which they can send fractions of bitcoins back and forth without paying on-chain transaction fees each time. A Lightning channel is a bidirectional payment channel, meaning both parties can send and receive payments across the channel. If at any point one party would like to exit the channel or settle their transactions, they can close the channel and settle back on the base layer. This means users can fit many trans­ac­tions into one fee-driven large settle­ment.

Using the LN becomes easier as the network grows and since the start of 2021, the number of LN nodes has increased from 12,000 to 20,000+. The Lightning Network saw modest growth for years until recently. The LN began 2021 with ~1,000 BTC of capacity and has since increased to 2,700 BTC in nine months. LN Strike, a private company built on the Lightning Network, began working intimately with the country of El Salvador earlier this year as El Salvador prepared to make BTC legal tender.​​

Public channel capacity on the Bitcoin Lightning network continued its growth in September, surpassing another all-time high of 2,900+ bitcoin. As the chart below illustrates, public channel capacity has recently hit an inflection point, averaging 12.5 newly added BTC per day over the last 90 days.

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Lightning Capacity Live Chart

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Michael @ CryptoEQ
Michael @ CryptoEQ

I am a Co-Founder and Lead Analyst at CryptoEQ


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