Bitcoin’s following in its younger brother’s footsteps, experiencing the need to innovate as the chain’s become more bloated than ever. The foremost scaling solution it has so far is Lightning, offering unprecedented speed and low fees. It gets even more efficient the bigger it gets, and Lightning just had one of its biggest weeks yet. But is it “the” solution?

Let’s dive in!

TLDR 📃

• The hash rate, a measure of Bitcoin's mining power, is at an all-time high, opening the door to a new industry.
• Bitcoin block space is in hot demand, leading to a 20% spike in block sizes this year.
• Lightning Network is emerging as a potential solution to the Bitcoin traffic snarl. But, only for payments and not this new DeFi ecosystem (for now)
• Both Voltage (through Google) and Binance announced Lightning support.
• One possible solution is to increase the block size - surprisingly.
• Bitcoin's price is experiencing a temporary slump, but its long-term prospects look promising. Yet, look out for downside to $24,250.

Disclaimer: Not financial nor investment advice. Any capital-related decisions you make is your full responsibility.

Bitcoin demand is through the roof - but there’s a catch…

Bitcoin mining is now a gold mine, and we've got data to back it up! Remember our chat about the mining stocks? Well, they're proving to be worth their weight in gold!

The hash rate, Bitcoin's very own mining power, has hit an all-time high. More miners mean more chances to dig up Bitcoin blocks and rake in those transaction fees. But wait, there's a twist. The rise of Bitcoin tokens might just usher in a MEV (Miner Extractable Value) industry. What's that, you ask? It's something like Ethereum's current situation.

MEV matters because in the Ethereum space, tokens and MEV go hand in hand. Imagine this: you're trading tokens, others see your move, buy the same tokens before you, and sell them after you've made your purchase. This sandwich attack could profit off your transactions. But MEV also has its perks – it levels out token prices across markets. However, if MEV steps onto the Bitcoin scene, you might face more competition and higher transaction costs.

Speaking of costs, demand for Bitcoin block space is rocketing. Transactions are packing blocks to the brim, and we've seen a 20% surge in block sizes this year alone. But why's size important? The larger the block, the tougher the mining. Bitcoin decided to stick with smaller blocks for easier mining and better decentralization.

Yet, Bitcoin blocks have been outgrowing their 1 MB limit. Why? The 2017 SegWit upgrade! It hiked the block size limit to 4 MB, but with a twist – the extra 3 MB can only hold parts of transactions. Picture this: SegWit didn't just add more lanes to a highway, it built a new road, separating cars and trucks. The 'car lane' carries the main transaction, while the 'truck lane' hauls the supporting bits. If all transactions used SegWit, we'd see full 4 MB blocks. Right now, we're at 1.6 MB – meaning more SegWit adoption could boost the network's usability.

But, there's another issue – transaction congestion.

Bitcoin’s mempool, where transactions queue before getting added to a block, is overflowing. Transactions are stuck in limbo, leading to delays and full blocks. The only way out? Wait your turn or cough up higher fees for faster processing. Now, if only there was a scaling solution to expand the Bitcoin network's capacity…

If only there was a scaling solution that added more capacity to the Bitcoin network...

“Lightning” the path forward ⚡

The Lightning Network is stepping up amidst the Bitcoin traffic jam, boosting its capacity to speed through transactions. Two key developments are pushing the adoption pedal:

1. Binance is gearing up to roll out Lightning support, promising users swift and affordable transactions.
2. Voltage recently teamed up with Google, enabling swift Lightning Node setups on Google’s cloud service.

These moves are paying off! In just a few weeks, we've seen a surge in Lightning nodes to over 17,500, and we're betting this uptick won't slow down anytime soon.

If you're thinking, "Hold up, what's Lightning again?", here's a quick refresher:

The Lightning Network is Bitcoin's clever shortcut to dodge on-chain transaction traffic. It sets up "payment channels" between nodes, passing transactions along a chain of nodes, adjusting owed amounts at each step. It's like a relay race, where one node hands off the transaction baton to the next, all the way to the final destination.

The more nodes join the race, the more routes transactions can take, making nodes' fees more competitive. And the best part? These off-chain detours come at a fraction of on-chain Bitcoin transaction fees. Neat, right?

But is actually the end all solution? Let’s go through the pros and cons.

Pros and Cons of Lightning 💡

Pros 👍

1. Micro-transactions champion: Lightning Network excels at handling small payments, a task usually requiring several companies or hefty gas fees. Plus, sometimes, Lightning's fees are a solid zero!
2. Privacy boost: Transactions on Lightning aren't on-chain, offering a privacy perk. You can even go incognito with anonymous transactions, blending into the vast volume of Bitcoin and Lightning transactions.
3. Lapps innovations: Lightning-powered applications (Lapps) use cheap, speedy payments to offer cool services, like fee-free Bitcoin vouchers or tipping tweets with satoshis. Lightning can be easily integrated as a payment option, online or in physical PoS devices.

Cons 👎

1. BTC-only: Lightning only supports sending Bitcoin as currency, not specific Ordinals, because Ordinals are linked to individual Bitcoin units (satoshis). The Bitcoin units you receive on Lightning are different from the ones originally sent. This likely changes through an upgrade.
2. Interoperability issues: There are multiple Lightning Networks, making cross-network transfers a bit tricky. To counter this, they've agreed on a set of standards, the Basis of Lightning Technology (BOLTs), for some lightning-fast coordination. Get it, Lightning BOLTs?
3. Limited capacity for large payments: Each Lightning node transfer needs the node to hold an equal or larger amount of money, so big payments need well-funded nodes. This might risk network centralization.

The verdict 📣

Lightning Network might just be the next big thing in payment processing. It's quick, super cheap, and taps into the Bitcoin blockchain only when necessary. Plus, it maintains all the crypto-security checks while making Bitcoin more day-to-day friendly. But with Bitcoin congestion, Lightning could become the preferred route for payments.

However, it doesn't solve the Ordinals issue (for now), so the Bitcoin traffic jam isn't fully fixed. Despite this, we urge you to test drive Lightning.

Check out Sparrow wallet. It's not just Lightning-friendly, it also supports other cool Bitcoin scaling features. And if you want to play with Ordinals, Sparrow won't limit you.

Thinking about setting up a node? It's easy. Set aside some Bitcoin, run some light software, and you're good to go. You can even charge a processing fee! For a speedy setup, try Voltage.

Okay, so Lightning is “great” but the problem remains unsolved right now - what does that mean for price? 🤔

Price analysis 📈

Don’t get your hopes up, BTC is still going down (in the short-term, the long-term looks better than ever - especially with the upcoming dollar failure).

For a second there, Bitcoin fooled many into thinking the bull run is back with its run from $26,000 to $28,500. BUT, it does not fool us as we know we must wait for confirmation to change biases.

Bitcoin remains on track for $24,250.

Cryptonary’s take 🧠

Bitcoin’s been busy, making the need to scale it more widely felt than it’s ever been.

Ordinals and BRC-20 tokens are packing blocks to unprecedented sizes, causing mining to boom. However, not everyone's thrilled. User experience is taking a hit, demanding a solution.

We've tried Lightning—great for payments and to help the ones purely there for a payment not pay more than they should, but not so much for the budding DeFi ecosystem on Bitcoin or Ordinals. An upgrade that makes Ordinals possible on Lightning is one solution and another is increasing the proportion of SegWit transactions further for that.

Bitcoin's growing similarity to Ethereum may soften resistance to scalability upgrades within the Bitcoin community. There's even buzz about NFTs, DeFi, and L2s at Bitcoin conferences—topics that would've been met with outrage not long ago. Truly, it's an exciting era to follow Bitcoin's evolution.

In the meantime, expect more downside on price (to $24,250) but downside is always limited. For Bitcoin, it’s the upside that’s unlimited and that made it one of the greatest investable assets of our generation.

As always, thank you for reading 🙏🏼