Lightning Network remains a niche product despite strong growth in 2021

Bitcoin’s Lightning Network scaling solution has been incredibly successful over the past year, growing in both volume and number of transactions.

With an exponentially growing adoption rate, Lightning will achieve even greater success in 2022 and continue to attract more and more users.

However, despite the massive growth, Lightning is still primarily a niche product, serving a very small portion of the Bitcoin market.

Lightning Network not yet can go mainstream

While most of the industry is focused on developing Layer 2 scaling solutions based on Ethereum, the Lightning Network had its best year ever.

Bitcoin’s high-speed payments network has seen a significant increase in usage thanks to a number of key integrations.

The most famous implementation of the Lightning Network took place in El Salvador, after the country became the first country in the world to accept bitcoin as its legal currency. Developed by the state of El Salvador, the Chivo wallet features a proprietary Lightning Network node and uses a high-speed payment network to enable low-cost and near-instantaneous transactions.

While it remains unclear whether El Salvador’s Chivo wallet will stand the test of time, it has acted as a significant catalyst for Lightning network adoption.

In addition, the solution is further strengthened by two other key integrations.

Last September, Twitter extended the “tip” feature to Bitcoin. Available to users in El Salvador and the United States, this feature allows sending and receiving bitcoins essentially for free. Therefore, Twitter integrated Strike, a payment app built on the Lightning Network that offers instant and free global bitcoin payments.

Also, online publishing platform Substack enabled a similar feature late in the summer, partnering with OpenNode to allow 500,000 paying customers to subscribe to Bitcoin.

Last week, mobile payments provider Cash App also announced it would roll out Lightning to 36 million customers in the US and UK.

All of this has propelled Lightning Network to unprecedented growth. According to data from CoinShares, Lightning has significantly increased network capacity, number of nodes, number of channels, and average channel size over the past year.

SEvolution of the Lightning Network in 2021 | Source: CoinShares

In its latest Digital Asset Outlook report, CoinShares expects Lightning to continue its growth in 2022. The company also believes the solution will start testing new use cases and not just a high-speed payment network for Bitcoin.

Although the network has grown significantly from its previous performance, it is still a niche product in the overall crypto market.

CoinShares notes that despite being 4 years old, the Lightning Network still only serves a relatively small segment of the market, made up mostly of hobbyists and entrepreneurs. The unbanked and politically disaffected also represent a significant portion of their user base, but ultimately represent only a fraction of the overall market.

Lightning’s lack of popularity in the crypto space may also be caused by Bitcoin itself. The majority of the market still see Bitcoin as a long-term investment and inflation hedge, which is why they choose to hold the asset rather than use it for payment.

The rise of low-cost Layer 2 EVMs has also made Bitcoin much less attractive as a means of payment, drastically reducing the market share Lightning is attempting to capture.

However, Lightning’s slow and natural growth can be a positive factor. Because the explosive growth of many payment protocols and DeFi in recent years ended in an equally severe crash. If Lightning continues to grow slowly and steadily, it has the potential to remain a staple of the crypto market for years to come.

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