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Over the last five years, the Lightning Network has emerged as the technology solution to the Bitcoin scalability issue.
However, its development has been slow and faced significant obstacles such as a lack of liquidity and potential risks.
Addressing these hurdles will require a collaborative effort between centralized and decentralized solutions, paving the way for wider Lightning Network adoption and increased Bitcoin usage.
I see these problems of Lightning Network clearly but first, let’s take a look at the numbers.
Lightning Network tatistics
For now, the Lightning Network protocol has over 16,000 nodes, with a total of 75,647 payment channels. Since 2020, the number of nodes has increased by 240%.
The current network capacity is over 5400 BTC, with the average node capacity at 0.333 BTC.
According to a recent study, the majority of the nodes are located in developed countries. Germany, Canada and the Netherlands have nearly 10,000 nodes between them, while roughly half of all existing nodes are based in the US.
Lightning Network apps (LApps) or LN wallets provide access to off-chain transaction channels. Currently, there are over 70 LApps or wallets across the market.
Exploring the risks
Although LN’s popularity and adoption are increasing, it features some risks users might be unaware of.
First, LN channels are fundamentally anonymous and decentralized, meaning the responsibility is shared solely by the parties involved.
This creates a massive concern in case one of the parties turns out to be a bad actor (e.g., when both parties are in the payment channel, one may close the channel and pocket the funds while the other party is offline).
Second, as all transactions are recorded off-chain except the last settlement, all funds may be lost if any participant closes the channel. This issue goes against the fundamental principle of blockchain technology, which is to ensure transparency.
Third, there’s the risk of malicious cyberattacks that can disrupt transactions and increase network congestion.
A report by the Florida International University showed that malicious bots could be configured to attack Lightning Network channel servers.
By breaching the network, they can create several channels and close them simultaneously, resulting in massive congestion and providing a window of opportunity for hackers to steal funds from their targets.
And fourth, there’s the risk of the…
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