Lightning Networks Has Yet to Strike Adoption Amidst BTC Crash

News / 15.03.2020
  • Lightning Network (LN) in trouble as total value locked in the chain plummets drastically
  • This coincided with Bitcoin’s flash crash on Thursday last week and massive BTC liquidations since then 
  • Despite questions over the decentralization and privacy of the LN, it has received support to improve its performance 

On March 14, 2020, data from Defi Pulse revealed that the Lightning Network’s [LN] stats had seen a considerable drop since the Bitcoin crash on 12 and 13 March. 

This was evidenced by the fact that the charts indicated the total value locked [TVL] in Lightning Network had recorded a huge decrease over that 2-day period.

According to the data charted by DeFi Pulse, the figure dropped to $4.30M on March 13 from $7.073M the previous day, indicating a decline of almost 65% in just 24 hours.

These figures are a far cry from its recent glory days, where TVL hit a ground-breaking of $1 billion on February 7, 2020, going as high as $1.235 billion 8 days later. It stayed between that figure and $900M until March 9, when it fell drastically as BTC markets crashed. 

Meanwhile, BTC’s flash crash on Thursday triggered the most long-short liquidations on crypto exchange BitMEX in 16 months. 

The top digital token fell from around $7,200 to a low of $5,675 in 15 minutes, spooking investors and triggering liquidations worth a whopping $702M on BitMEX.

Lightning Network Fails to Strike

The Lightning Network emerged as a solution to BTC’s scalability woes as it uses the concept of off-chain payment channels so that two parties can send and receive Bitcoin between one another instantly. Once the parties close the channel, the final balances are broadcast to the Bitcoin network. 

However, there are recent signs that the LN may have failed to deliver on its intended purpose, with a recent publication from an academic group indicating that the network was becoming increasingly centralized, showing high coefficients in node centralization and wealth distribution. 

Another interesting research paper was presented by BitMEX, with the crypto exchange questioning the LN’s privacy and scalability factors. The study identified over 60,000 transactions of Lightning Network’s non-cooperative channel closures taking place as of Jan 2020.

The BitMEX research concluded that while LN has greatly enhanced privacy as opposed to on-chain transactions, the blockchain monitoring services may still “identify and publish non-cooperative closures and penalty transactions.”

With the latest hit from plummeting stats owing to the BTC crash, the numbers certainly appear to back up the low uptake of the Lightning Network. 

Is This The End For Lightning Network? 

None of this is to say that LN is doomed to fail, as it still has plenty of supporters. Twitter’s Jack Dorsey is one notable example, with his Square Crypto startup officially launching a grant program to support the development of the BTC network.

In fact, Roy Sheinfeld, a co-founder of LN-powered payments app Breez, believes that the network simply needs more time but is doing well in terms of adoption. 

Featured image courtesy of Shutterstock. Source: Cryptopress.

Wayne is a Blockchain enthusiast and expert in crypto trading. Currently, he covers trendy issues on digital currencies.