Bitcoin Lightning Network expands, yet three significant obstacles persist.

The Lightning Network serves as a layer-2 solution built atop the Bitcoin blockchain, primarily aimed at resolving the scalability challenges of the Bitcoin network. It enables quicker and more cost-effective transactions by facilitating off-chain payments through a network of payment channels.

Since its inception in 2018, the Lightning Network has gained momentum, achieving a total value locked of $140 million; however, this figure remains modest compared to Bitcoin’s (BTC) $580 billion market capitalization. This simplification overlooks the fact that this scaling solution prioritizes instant transactions rather than lending, yield farming, or other activities that necessitate staking.

Moreover, the number of nodes has only increased by 6% since June 2022. This indicates that there are substantial reasons for its lack of mainstream adoption. Let’s examine some of the factors affecting the growth of the Lightning Network.

Channel balancing, liquidity acquisition, and associated costs influence network expansion

For users of the Lightning Network wishing to execute a payment that exceeds their channel balance, it is necessary to locate a well-capitalized node with a direct channel to the recipient to complete the transaction. This can be a challenging and time-consuming endeavor, particularly if the recipient lacks strong connections within the Lightning Network.

Channel balancing necessitates that users effectively manage the funds within their channels. While rebalancing is automated when using applications like Phoenix or Breeze, it introduces complexity for intermediate users who depend on their own nodes. Viktor Bunin, a protocol specialist at Coinbase Cloud, states:

“This capital inefficiency at the edges for non-custodial users is a hard and annoying optimization problem, and it’s objectively worse than an account-based model with arbitrary transaction sizing. However, it’s not an unworkable problem.”

In addition to the challenge of optimizing channel funding, there are also costs associated with opening and closing channels, as this requires an on-chain transaction. This can pose significant issues if the median fee exceeds $5 or $10, which would severely restrict usage for lower-income individuals and discourage network expansion.

Potential development setbacks may deter users

The Lightning Network remains under development, which means it continues to encounter certain security vulnerabilities. One concern is that if a node goes offline, it cannot process payments through the channels it is linked to. This interrupts the payment process until the node is back online, potentially causing inconvenience for users.

Bunin points out that there are no offline methods for Lightning payments, but noncustodial wallets provide “clever workarounds” utilizing background tasks on mobile devices. Nevertheless, this solution may face limitations if the device’s operating system restricts performance to conserve battery life.

Double-spending poses a risk on any blockchain-based system, including the Lightning Network. This type of attack could occur if a node remains offline for an extended period, subsequently presenting an incorrect state and returning coins to the other party. This risk arises only if the user is inactive in notifying the “justice transaction” or has not established “watchtowers” to demonstrate that fraud is occurring when a channel closure is requested.

Slow merchant adoption and limited user awareness

The broad acceptance of any payment system necessitates widespread merchant participation and high user awareness. However, the Lightning Network encounters challenges in both aspects.

Merchant adoption is hindered by the complexities involved in integrating the Lightning Network into existing payment systems, concerns regarding Bitcoin’s price volatility, and regulatory uncertainties. Conversely, efforts are underway to enhance merchant adoption through user-friendly point-of-sale systems and collaborations with payment processors.

For example, Zeus and OpenNode are well-known wallets that provide a user-friendly point-of-sale application for merchants. This application enables merchants to accept Lightning Network payments via a QR code or NFC scan.

Furthermore, user awareness of the benefits and functionalities of the Lightning Network remains relatively low. Educating users about the advantages and simplicity of Lightning payments is crucial for overcoming this barrier.

What lies ahead for the Bitcoin Lightning Network?

In addition to the more apparent challenges mentioned, such as channel rebalancing and security vulnerabilities, developers are working on enabling payments that can be executed when the recipient is offline, referred to as asynchronous (async) payments.

A significant milestone for this Bitcoin scaling solution was its integration by the Binance exchange in July. The reduced withdrawal fees serve as a major advantage compared to wrapped Bitcoin options available on competing blockchains. Coinbase CEO Brian Armstrong confirmed in August that the exchange is also eager to implement Bitcoin’s Lightning Network.

This layer-2 scaling solution possesses substantial potential to improve Bitcoin’s transaction efficiency and scalability. As the technology evolves and efforts are made to tackle these challenges, the scaling solution may ultimately achieve wider acceptance and increased adoption.

This article is intended for general informational purposes and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.