Concerns as Lightning Network Capacity Drops

The Lightning Network (LN) capacity dropped recently according to latest figures from 1ML which monitors and provides relevant analysis about the ‘Layer 2’ payment protocol. The capacity which has passed the 1000 BTC mark back in March now sits around 951 BTC (as at this writing) despite it has reached almost 1100 at its peak in early May. Total number of nodes is indeed increasing still though.

LNbig, whose nodes are used mostly for the LN payments, later informed that the drop could be its doing for closing some channels. But that didn’t stop concerns raised in various communities about where the scaling issue is headed.

I closed not-used public channels initiated from my side (age >= 78 days). But I intended to close a maximum up to 1.2 BTC and due to error in the script, all these channels were closed – it's -67 BTC capacity. So capacity of LN will drop 1015-67 948 BTC near hours…

— lnbig_com (@lnbig_com) June 5, 2019

Despite the disclosure, questions have arisen about the protocol’s viability to achieve the desired outcome going by such a slide and what the protocol has been able to achieve in about a year.

LN operates on top of a blockchain-based cryptocurrency like Bitcoin with the hope that it will enable fast transactions between participating nodes and solve the top cryptocurrency’s scalability problem. Recent arguments centre on less users embracing the protocol supposedly for its high fees – that is little demand for the service.

LNbig still owns more than 600 BTC as at today in the order of capacity. There have been claims in the past that the fact an entity controls more on the network does not make the protocol decentralized to achieve its intended goal.

Other claims against the protocol include that:

– it has potential security to be a low fee on-chain solution (though others differ). This plays out in the view of some who consider LN as non-existent until major wallet providers integrate it into their various platforms or all the major exchanges accept it. But exchanges are not supporting it yet though they didn’t indicate its insecurity like the first layer as a reason
– it has major usability issues especially being a new software with a rough user interface and experience. It could need more time to gain interest of users
– it is now in a fierce competition with several other chains that are capable of beating LN in what it promises to deliver. Several LN alternatives now exist thus having their rise impact the growth of LN.

Its proponents maintain that all of the LN implementations are still in beta hence not much should be expected at this point in time. Others argue that the real growth of the network is not being tracked correctly for now since nodes are going dark due to privacy settings particularly as more LN users transition to mobile nodes with their channels going private. The public capacity may be declining slightly, but this says nothing about the total capacity of the network, one respondent says. Another adds that many people closed their channels to play the market volatility – that is the rise in Bitcoin price. When the market is calm, they will return.

For the cofounder of Malaysia-based CoinGecko, Bobby Ong, LN is still going to be big especially as crypto exchanges embrace it.

He says: “I am incredibly bullish on Lightning Network. Exchanges are slow to warm up to it, indeed but I am hoping towards the end of the year we will see more exchanges following Zebpay and integrate Lightning Network”.

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