The Lightning Network is a much hyped improvement for Bitcoin. This secondary protocol layer built through the use of Bitcoin smart contracts allows for much faster, cheaper payments because the transactions do not necessarily need to be recorded on the slow, expensive base blockchain.
While the Lightning Network may appear to be the key ingredient for scaling Bitcoin payments to millions more users in the coming years, at this point the vast majority of users seem to be more interested in the crypto asset for price speculation purposes at this time.
That helps explain why the Liquid sidechain, a federated, permissioned blockchain pegged to Bitcoin that aims to help traders move funds between exchanges more quickly, may be more important for Bitcoin in 2020. Recently, the amount of BTC held on the Liquid sidechain surpassed the amount of BTC held in public Lightning Network channels.
Tracking Liquid and Lightning Network Growth
As the chart above shows, Liquid surpassed public Lightning Network channels in terms of BTC holdings earlier this month (March 2020). Currently, there is 952.9435822 BTC on the Liquid sidechain (according to Liquid.net) and roughly 918 BTC held on public Lightning Network channels (according to DeFi Pulse).
The combined USD value of the BTC held on Liquid and public Lightning Network channels is around $12.5 million, which is rather tiny when compared to the entire Bitcoin network. As a comparison, Coinbase alone once held 10% of all Bitcoin in circulation, which would be worth around $12.2 billion at today’s prices.
A point of clarification is needed, however, about public vs private Lightning Network channels. The total amount of BTC held on the Lightning Network is higher than what is available with public data because some people do not want to broadcast the existence of their Lightning nodes to the entire world.
Data from BitMEX Research shed some light on what the real Lightning Network numbers may look like back in February. They noted 88% of the BTC held on the Lightning Network is held in public channels, according to their blockchain dataset. Based on that information, the amount of BTC held on the entirety of the Lightning Network (including private channels) could be crudely estimated at around 1,043 BTC, which is more than what is currently on the Liquid sidechain.
That said, the Liquid sidechain is certainly on pace to surpass the amount of BTC held on both public and private Lightning Network channels combined in the near future.
Liquid and Lightning will both have roles to play in scaling Bitcoin to a much larger user base in the near future. In fact, these two technologies can be combined to enable enhanced functionality such as instant, atomic swaps between Liquid and the base Bitcoin blockchain.
While Liquid may be a more important development today due to the manner in which most people are using Bitcoin, the Lightning Network will continue to develop and prepare for the day when cryptocurrency payments become more widespread.
This piece was corrected at 12:15 p.m. on March 26, 2020.