Lightning Network Proving Less Electric for Bitcoin Than Promised

Bitcoin's greatest hopes now reside in the Lightning Network and solutions like it.

Currently, the low rate of use means that operating nodes lose money when they process transactions while an average channel capacity sits at a mere 0.027 BTC.A decline in the Lightning Network's capacity is casting a shadow on Bitcoin's timely introduction into the mainstream, bringing up some existential questions that may or may not be justified.

A primer on the Lightning NetworkBy using the slower Bitcoin blockchain as a foundation instead of a main transaction processor, the LN essentially borrows Bitcoin's immutable and trustless aspects without impacting its speed in a significant way.

The original Bitcoin blockchain is capable of executing around seven transactions per second, which is obviously unsuitable for any high-volume payments network.

Though LN is still in its beta phase, it should be able to upgrade Bitcoin to 10,000 transactions per second or more - a significant upgrade.

Such significant increase in the network's speed is possible because Bitcoin is immediately available to be moved between users on the LN - there's no need to wait for the network to verify and process each transaction as it's received.

The Lightning Network's speed is therefore directly related to how many people are supporting it by contributing their BTC.Lightning fallsCalled "Network capacity," the total value of Bitcoin inside LN channels at any moment is now dropping.

The idea of offloading processes to a sidechain is preserved, but it operates smart contracts that are secured by BTC on the Bitcoin blockchain instead of a rudimentary payment channel.

Even Ethereum has found a way for people to transact and represent Bitcoin in its decentralized applications with Wrapped Bitcoin, which simply uses a smart contract-based price oracle and a one-to-one backing to denominate BTC in ERC-20 financial systems.

As long as transactions on the chain are not more expensive than the Lightning Network's, users will likely stay on the Bitcoin chain instead of locking up their assets elsewhere.