During 2016 and 2017 the cost of transactions on the Bitcoin network rose dramatically. Users who chose not to pay the top fees had reported their transactions stuck for days or even weeks.
This sparked the need for a Layer 2 solution that could significantly reduce transaction fees and confirmation times. That solution came from a 2015 white paper drafted by Joseph Poon and Thaddeus Dryja for Lightning Network.
In May 2017, the first full and secure Lightning Network transaction was successfully sent. The network uses payment channels that allow for multiple transactions without the need to broadcast each one to the Bitcoin blockchain.
Once the payment channel is closed the balances are finalized and reported to the base chain. The last 12 months have been incredible for cryptocurrencies, with the number of crypto wallet holders and transactions back in boom, and this year, Lightning network has been seen exponential growth.
There are some skeptics who believe transactions off the main chain remove the transparency and decentralization from blockchain, but with major players starting to use the Layer 2 solution it has grown in credibility.
This year, El Salvador made Bitcoin a legal tender with the Government promotes its wallet, also using Lightning Network for transactions. In October 2020 there was $12m in Bitcoin locked into Lightning Network. Just one year later and Defi Pulse statistics now show a sum of $169m, a 1400% increase in one year for the Layer 2 network.
There are rumors around additional countries using Bitcoin as a legal tender. If they decide to also promote a wallet that uses Lightning Network these numbers may increase exponentially in the coming years.
The more Bitcoin locks into the network, the less Bitcoin there is in circulation. When there is less Bitcoin in circulation and growing demand for the coin, the price of the coin can increase.
The fourth quarter of this year is looking promising for Bitcoin and other cryptocurrencies, Lightning Network has found a way to bring real-world adoption to Bitcoin, which is just the start of an exciting time to be a cryptocurrency holder.